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The risk score will be familiar to asset managers and investors as the key summary risk measure for financial products, such as the SRRI for UCITS KIIDs and the SRI for PRIIPs KIDs. While the CCI Risk and Return Score methodology is simpler than under PRIIPs and more similar to the UCITS KIID, a few key differences will have a major impact on the final score a product receives.
How will risk scores change under CCI?
Under the CCI, the market risk score is determined using annualised volatility calculated from weekly returns. Using anonymised data from the FITZ Partners database (part of the RiskConcile group), combined with NAV histories from FactSet, the RiskConcile team computed risk scores for over 15,000 UK and EU share classes under the UCITS, PRIIPs and CCI methodologies. Only share classes with at least 10 years of NAV history (the CCI requirement) were included. All risk scores were based purely on market risk measures.
Under CCI, the risk score distribution shifts upward, with more share classes receiving higher scores.
Risk Score Methodology
The volatility metric used under CCI is almost identical to that used for UCITS KIIDs. However, the calculation window increases from 5 to 10 years, bringing the higher volatility of the COVID period back into scope and raising volatility estimates for most products. In addition, the move from 7 to 10 risk categories creates narrower bands, meaning smaller volatility changes are more likely to trigger a higher risk score. Together, these factors imply that most share classes will see their risk score increase under CCI compared to UCITS KIIDs. Above, we show how scores shift by prior UCITS SRRI rating.
The difference is even more pronounced when compared to PRIIPs. In PRIIPs KIDs, the SRI is based on a more sophisticated VaR-equivalent volatility metric (VEV), and typically produces lower scores than the UCITS SRRI. As a result, the jump from a PRIIPs SRI to CCI is often much larger.
The underlying metrics used to determine the risk scores under CCI and UCITS, as well as the corresponding category levels, are based on each share class’s annualised volatility over 5-year and 10-year periods. The 5-year volatility determines the UCITS SRRI, while the 10 year volatility determines the CCI risk score.
A small but clear pattern emerges: on average, 10-year volatility is higher than 5 year volatility. When combined with the narrower category bands under CCI, this makes an increase in risk score almost inevitable for higher-risk products (due to 2020 Covid volatility). In particular, share classes with a UCITS SRRI above 5 typically increase by at least one level, and sometimes by two, under CCI.
How likely will it be to see an increase in a product’s risk score?
It depends on the product type: riskier share classes are more likely to see their scores increase. The contrast is particularly stark when comparing fixed income
strategies (e.g., bonds) with equity-focused share classes:
There is far more overlap in the risk score distribution for fixed income share classes than for equity-focused ones. Riskier equity strategies tend to see larger
score increases, driven by the longer 10 year volatility window and the new CCI classification bands.
To better understand this shift, we also analysed share class naming terminology using natural language processing. A Term Frequency/Inverse Document Frequency (TF/IDF) approach was applied to identify words that stand out across different SRRI and CCI risk score combinations. The words associated with each risk-category pairing are those that are common within that pairing but less frequent across others, providing insight into how the share class risk score landscape varies by investment area and asset class.
As expected, share classes with “bond” in their name are generally less risky than those containing “equity” and can be found in the 1-4 CCI Risk Scores. We also observe several other notable patterns. For example, SRRI level 6 products that move to level 8 under CCI disproportionately include terms such as “China” or “Latin”, whereas those that remain at level 6 more frequently contain words like “Global”, “Asia”, or “Japan”.
Conclusions
In conclusion, the transition to the CCI regime is expected to materially reshape the risk score landscape for retail investment products, particularly those
with higher inherent risk. The longer 10-year volatility window, combined with narrower and more numerous risk categories, systematically pushes risk scores higher than under both UCITS SRRI and PRIIPs SRI methodologies. The impact is strongest for equity-focused, while fixed income strategies show more
limited movement. Asset managers should therefore anticipate higher disclosed risk scores and proactively assess the regulatory, distributional, and communication implications under CCI.
