The Financial Conduct Authority (FCA) has U-turned on its position on performance projections in key investor documents (Kids) just hours after FTAdviser published warnings from the industry it could create a mis-selling scandal.
FTAdviser revealed this afternoon the serious concerns of senior industry professionals and trade bodies about the implications for investment trusts and their investors of having to put projections of future performance into the new investor information documents.
Simon Fraser, chairman of the £4bn Foreign and Colonial Investment trust told FTAdviser it risked creating a “future mis-selling scandal”.
FTAdviser put these concerns to the regulator. But right up until yesterday (23 January) spokespeople for the FCA maintained the regulator would be sticking to its stance of requiring the projections, and, crucially, refusing any caveats to the future forecasts to be included by the fund managers.
Mr Fraser said he had previously requested permission to include a cover letter with the Kid document in order to mitigate the risk of mis-selling, but was refused permission by the FCA to do so.
When contacted by FTAdviser on several occasions over the past week to help us understand the regulator’s position on the issue, the FCA said its position had not changed, but would be reviewed later this year.
The regulator pointed to a page in its own policy paper, published last year, which said that while the organisation is willing to allow additional material with the Kid document, this must not, “contradict or diminish” the significance of the information in the document, such as the future performance projections.
But in a statement released on its website this afternoon (24 January), the FCA’s position on its implementation of the European rules on Packaged Retail and Insurance-based Investment Products, which includes Kids, appears to have softened.
The statement said: “We understand some firms are concerned that, for a minority of Priips, the ‘performance scenario’ information required in the Kid may appear too optimistic and so has the potential to mislead consumers.
"There may a number of reasons for this: the strong past performance of certain markets, the way the calculations in the Regulatory Technical Standards must be carried out, or calculation errors.
"Where a Priip manufacturer is concerned that performance scenarios in their Kid are too optimistic, such that they may mislead investors, we are comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider.
"Where firms selling or advising on Priips have concerns that the performance scenarios in a particular Kid may mislead their clients, they should consider how to address this, for example by providing additional explanation as part of their communications with clients.”
The move from the regulator is likely to be warmly welcomed by the industry.
This week Baillie Gifford confirmed that a number of the boards of its investment trusts had written to the FCA to express concern about the Kid requirements.