The Financial Conduct Authority has warned providers and advisers to prepare for the introduction of European Union-wide Packaged Retail and Insurance-based Investment Products (Priips) at the end of this year.
In its January regulation round-up, the FCA stated this “major piece of European legislation” applies directly to a range of different business models.
The new rules aim to encourage efficiency across member states by helping investors to better understand and compare the key features, risks, rewards and costs of different Priips.
“It is important that all firms who manufacture, sell or advise on Priips understand what the changes mean for them before the implementation date of 31 December 2016,” the document read. “Manufacturers must prepare a Key Information Document (KID) and publish it on their website.”
The KID is a stand-alone, standardised document prepared for each investment, which the FCA explained must contain specific information under the following headings:
|What is this product?|
What are the risks and what could I get in return?
What happens if the manufacturer is unable to pay out?
What are the costs?
How long should I hold it and can I take money out early?
How can I complain?
Firms who sell or advise on a Priip must provide their client with a KID in good time before any transaction is concluded.
If the client starts the transaction by telephone, firms can provide the KID after the transaction has taken place, but only if it is not possible to provide it in advance and the client consents.
The FCA added it will be consulting later this year on amendments to disclosure requirements in the Handbook to include the introduction of the Priip regulation.
Last year, providers and trade associations sounded caution over the new requirements, suggesting they could become a “real headache” for financial advisers.
Steven Cameron, regulatory strategy director at Aegon UK, explained further insights were gained into the regulation in November, when proposed rules were published for consultation.
He said: “We’re now clearer on the content and appearance of disclosure documents, but despite an official implementation date of end 2016, there is still much to be done to work out precisely how to apply the rules in practice.
“Due to the complexity of the task ahead and the proximity of the deadline, we would support the European trade body Insurance Europe’s call for a year’s delay.”
Within the scope of the Priips are funds, structured products, unit-linked and with-profits life insurance contracts, while pensions and pure protection business currently fall outside of the rules and will be reviewed for inclusion in 2018.
Mr Cameron pointed out applying EU-level definitions to UK-specific products can be a complex legal process.
On disclosure, customers will receive a standard non-personalised pre-sale Key Information Document (KID), with a product description, summary risk indicator, projected performance figures and information on charges.
“This is substantially different from the disclosure material UK customers currently receive and a key challenge for advisers will be helping their clients understand what can be complex and unfamiliar concepts,” he pointed out.