Today’s consultation paper on making changes to improve customer communications has seen the regulator admit failures in various documents it has required advisers and providers to use over the years.
The document detailed plans to remove a number of “ineffective” communication requirements from the Financial Conduct Authority handbook, noting feedback from a discussion paper that was published in June.
Starting with the Consumer-Friendly Principles and Practices of Financial Management, the FCA stated that despite testing when the previous regulator introduced it in 2004, this disclosure has not been as successful as first expected in terms of increasing the transparency of with-profit business.
“Feedback suggests few consumers read the document and, those who do, find it difficult to understand,” read the consultation.
It also pointed out that European regulation from 31 December 2016 will require all manufacturers of retail investment products, including with-profit insurance contracts, to provide potential customers with a Key Information Document, outlining the costs, risks and potential performance associated with these investments.
In terms of the Initial Disclosure Document and Combined Initial Disclosure Document, the FCA expressed concern that these templates create a risk that firms adopt a ‘tick-box’ approach to their disclosure obligations, rather than designing an effective disclosure to help their target customers understand the scope and cost of their service.
“Also the templates, though only guidance, may still be viewed by firms as a constraint on finding new ways of engaging consumers on key messages,” read the document, adding that the proposal is therefore to delete both of them.
Firms may continue to present the information in the same way set out in the templates, but will no longer be able to use the Key Facts logo after the rules come into force, although there will be a tail-off period for existing paperwork, etc.
With the Combined Initial Disclosure Document and Services and Costs Disclosure Document, anecdotal evidence received by the FCA suggested the template leads to duplicated information to consumers and firms again adopting a tick-box approach, rather than considering how disclosure of services and costs can be best delivered.
“This was not our policy intention when we introduced the guidance and templates,” stated the regulator, adding that it is now proposing to remove them both, although firms are free to continue to present the information in the same way set out in the templates.
Rules also currently require authorised fund managers to prepare an annual report and a half-yearly short report for each Ucits scheme and non-Ucits retail scheme that they manage.
The short reports were introduced in 2004 because the Financial Services Authority considered the annual manager’s report was so long and detailed that most retail investors found it difficult to understand.
“Since its introduction, we have received feedback that the short report does not meet the original aim of providing clear and focused information about funds,” said the FCA, listing several reason why this may be the case.
This could be because the length and content of the short report does not significantly improve on the long report; there is a potential time lag in short reports being distributed which the information is not timely or pertinent to investors; and that many fund investors buy products through intermediaries such as online platforms and therefore do not automatically receive the short report.
Given these considerations, the FCA has proposed to amend the sourcebook and delete requirements to produce and provide such reports.
peter.walker@ft.com
