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What is the PRC?
The product risk classification (PRC) is a risk indicator that is based on quantitative models. It allows us to compare the financial risk of investment products of different kinds and asset classes. The PRC is a risk measure for single instruments, which does not consider portfolio aspects. It can be based on historical data and thus can vary during the lifetime of a product.
Fulfill regulatory requirements
The product risk classification is another building block for fulfilling requirements such as FIDLEG or MiFID II, which require checking the suitability and appropriateness of proposed investments as well as providing the customer with transparent and comprehensible information on all risks connected with the proposed investment. From a regulatory point of view, the PRC becomes important as soon as an advisor needs to assess whether a client is able to bear the financial risk of a specific investment product.
Do things from complex to pragmatic. One could also call this: Reverse Innovation.