Ucits funds must not escape EU disclosure push - FSC Panel

The Financial Services Consumer Panel (FSCP) has used its response to a consultation on key information documents for Packaged Retail and Insurance-based Products (Priips) to warn that temporarily exempting Ucits funds from disclosure requirements could result in “regulatory arbitrage”.

Priips regulations, due to come into effect at the end of 2016, will require providers to provide a granular disclosure of all product costs, including transaction charges such as bid/offer spreads, in key investor documents (KIDs).

Ucits funds, however, are scheduled to have a minimum three-year exemption from the European Supervisory Authorities’ proposals, meaning they can continue to use key investor information documents (KIIDs) until 2019.

In comments published last week, the FSCP said: “It is likely the prescribed approach will result in some regulatory arbitrage, as manufacturers of Ucits will face less strict requirements in presenting their products to retail investors.

“The panel hopes the EU legislators will use the next available opportunity to bring Ucits within the scope of the Priips regulation to make the EU legislative framework for investment products as consistent as possible across different sectors.”

The FSCP said that Ucits’ funds exemption could make it difficult for intermediaries to meet their own, more stringent disclosure requirements once the second Markets in Financial Instruments Directive (Mifid II) comes into force in 2017.

“[The exemption is] at the root of potential problems in the disclosure of transaction costs by intermediaries under Mifid II,” it added.

Ensuring separate European regulations do not conflict with one another is becoming a priority for fund groups as legislative deadlines draw near.

Asset manager BlackRock used its response to the Priips consultation to call for consistency between the different pieces of regulation.

It said: “It is essential that the final reporting process adopted by the European Supervisory Authorities dovetails closely with that adopted for Mifid.

“[This] in turn drives product cost disclosure for retail product disclosure in Priips, and... will lead to additional disclosure in both Ucits and the Alternative Investment Fund Managers Directive.”

On the subject of disclosure, it added: “It is essential that the figures are derived from the same building blocks, in order to deliver consistency of approach, thereby enabling meaningful comparability between providers.”

BlackRock also called for “close cooperation between all regulators working on cost disclosure to agree a consistent methodology”.

In November 2014 the FSCP submitted a paper to the FCA in which it called for fund groups to disclose fees in a single, all-encompassing figure.

It said: “The single charge regime would place investment managers at risk for the decisions they make and strengthen accountability.”