Bank of Russia sums up results of first behavioural assessment for non-qualified investors’ testing
The assessment was carried out to try out test questions for non-qualified retail investors. The main objective was to find out how well individuals comprehend the specifics and inherent risks of complex financial products.
The questions were prepared by the self-regulatory organisations of brokers. Following the assessment, the Bank of Russia determined further actions to enhance the tests, which will help improve the protection of the rights of newcomers in the financial investment market.
The Bank of Russia conducted its behavioural assessment within the annual competition ‘The Best Private Investor’ held by the Moscow Exchange from 17 September to 17 December 2020. The regulator surveyed 429 individuals. Based on the analysis of the depth of the questions, the competitors’ replies and financial performance over the two calendar months, and the correlation between these results and the level of knowledge demonstrated by respondents in the course of the testing, the Bank of Russia have drawn the following conclusions.
Moderately complex questions are most suitable for the test. They imply that individuals have basic practical skills, e.g. are capable to solve a problem using a single formula. Simple (knowledge of fundamental definitions) and complex (estimate of prospects, forecasting, and addressing problems with account of existing circumstances) questions turned out to be less efficient. The Bank of Russia has also found out that more questions are needed to reliably determine an investor’s knowledge level (previously, it was assumed that they should number seven). Specifically, their number should be increased to 11 and more in each test.
The assessment will enable the Bank of Russia to not only identify the actual level of retail investors’ preparedness to deal with complex financial instruments, but also factor in the findings obtained when developing the relevant regulation and improving the tests.