The Financial Conduct Authority (FCA) has unveiled proposals to amend disclosure documents given to retail investors under the Packaged Retail and Insurance-based Investment Products (Priips) regulation.
The UK watchdog said that changing the regime would “provide more clarity to consumers”, especially in terms of what the products actually are, the risk they present, and information to help understand likely future performance.
Professionals who produce, advise on or sell these products are required to give clients a key information document (Kid).
But the regulator said that, for some Priips, the Kid has the potential to “contain misleading information as a result of the methodologies used in producing performance scenarios and summary risk indicators”.
Additionally, the FCA added that there has been a “lack of clarity” within the regime on the corporate bond market, which has led HM Treasury to diverge from the EU Priips framework.
Sheldon Mills, executive director, consumers and competition at the FCA said: “Exiting the EU has provided us an opportunity to quickly amend technical standards surrounding key information documents as we know that they are not fully achieving the intended aims.
“We want to ensure that consumers have what they need through transparent information and furthermore through the reduction of potentially misleading information being displayed.”
The Financial Services Act 2021 allows the UK watchdog to specify whether a product can be classified as a Priip under the regulation as well as to define what is meant by performance information.
The current consultation focuses on the most serious concerns surrounding Priips and proposes to:
- Clarify the scope of the regime to make it clearer that certain common features of these products do not automatically make them into Priips, and clarify guidance on the meaning of Priips being “made available” to retail investors; and,
- Amend the Priips regulatory technical standards (RTS) to require written explanation of performance in the Kid; combat inappropriate low risk indicator assignment in the document; and address concerns over applications of the slippage methodology when calculating transaction costs.
The FCA plans to amend the Priips RTS by the end of 2021, subject to the outcome of the consultation, with any changes coming into effect from 1 January 2022.