The Financial Conduct Authority (FCA) published the finding after undertaking an assessment of the effectiveness of the disclosures by asset managers and intermediaries required by the Markets in Financial Instruments Directive II (Mifid II) and Packaged Retail Investment Products (Priips) regulations, which came into effect in January 2018.
The UK’s financial watchdog said it also found that some firms “struggled to obtain all the data they need from other firms to enable disclosure of all costs”.
The FCA said that firms involved in the design, manufacture and distribution of products “need to work together to ensure all costs and charges are disclosed properly to customers”.
But the FCA also noted that all the firms under review “were aware of the rules and their responsibilities” to disclose all costs and charges to customers, and the watchdog admitted it “saw examples of good practice that exceeded compliance with the relevant rules”.
Full disclosure difficult
Gary Kershaw, compliance director of The SimplyBiz Group, told International Adviser: “The implementation of costs and charges disclosure has proved a real thorn in the side of intermediaries.
“Almost exclusively, the intermediary sector believed that the manufacturers with which they work would be able to provide this information in the required format at outset.
“However, where this has not been the case, it has proved an almost impossible task for them to gather the information accurately.
“It is pleasing to see that most manufacturers have taken great strides in solving this issue, and therefore I am confident that, should the FCA do a similar review 12 months from now, their findings would be much more positive.”
Priips feedback statement
The FCA issued a ‘Call for Input’ feedback on a number of issues, including the scope of Priips regulations, summary risk indicators and performance scenarios.
The FCA said that it “shares the concerns raised by respondents regarding these particular issues” and will continue to work closely with the European Commission and ESAs to influence the full review of PRIIPs regulation due in 2019 in an attempt to address concerns raised.
The Call for Input also highlighted concerns that some Key Information Documents (Kids) were displaying negative, zero or very high transaction costs that are unlikely to fairly represent the true transaction cost of the product.
The FCA said it “continues to believe that the Priips methodology is working as intended”.
It said the evidence received as part of the Call for Input suggested that “unrepresentative transaction costs were largely due to poor application of the methodology by firms”.
Ian Sayers, chief executive of the Association of Investment Companies (AIC), said: “It is good to see that the FCA has taken on board the strong concerns we have raised about Key Information Documents (Kids).
“Its feedback statement agrees that both the summary risk indicators and performance scenarios in Kids can be misleading, and that the regulation could cause consumer harm if problems are not addressed.
“We welcome the FCA’s intention to work in Europe to address these problems, but this will take time, and meanwhile consumers are still being misled.
“The regulator should take a creative and urgent approach to protect UK consumers from harm, for example by ensuring that information in Kids does not spread to other parts of the market.
“We hope to work closely with regulators to discuss options for immediate action.”
Regulators take on the findings
Andrew Bailey, chief executive of the FCA said: “While awareness of the rules appears good, we found that firms take inconsistent approaches, risking confusion for customers, who may be misled about how much they are being charged.
“Certain aspects surrounding compliance with Priips may risk not leading to good consumer outcomes and we are working with EU institutions to address these.
“We are aware that many firms are finding aspects of the calculations difficult or are making inaccurate calculations. We will work with firms to help them ensure their reporting is accurate.
“We are aware of public claims of an intent deliberately not to comply with the new rules. While we have found some areas of non-compliance with the new rules the claims which have been made regarding this are not supported by the evidence in important respects.”
Consultation on costs and charges disclosure
The FCA has also published a consultation setting out proposed rules that require pension scheme governance bodies, such as Independent Governance Committees, to disclose costs and charges to scheme members.
The proposals are designed to improve the quality of information available to pension scheme members and allow workplace pension schemes to be better held to account by their members.
Steven Cameron, pensions director at Aegon, said: “The FCA’s consultation on giving workplace pension members access to more information on costs and charges, including fund transaction costs, follows on from rules already set by the Department for Work and Pensions for members of trust-based schemes.
“In future, more individuals will access this information, making it essential that it is calculated in a consistent and meaningful way and presented carefully in a context that allows those individual to make an informed decision.”