An industry body has called for a more radical reform of Priips rules after the Financial Conduct Authority confirmed changes to the regime.
The Association of Investment Companies (AIC) called on the Treasury to “make good” on its promise to conduct a wholesale review of the current disclosure regime for UK retail investors, after the regulator scrapped the contentious performance scenarios included in the key investor documents (Kids).
Richard Stone, chief executive of the AIC, said he is pleased the FCA has taken action on certain elements of the regulation, but it is now at the end of the road.
“The FCA has done all it can to reform Kids without being given further powers," he said.
We remain concerned about the persistence of the uneven playing field between Ucits funds and investment companiesRichard Stone"Now is the time to get started on the Treasury’s promised wider review of the regime.”
He said the FCA’s consumer investment strategy seeks to get more people investing, which relies on consumers having a high degree of confidence.
This is achieved by providing investors with the best possible information, which needs to be consistent and comparable across different investment products.
“Whilst the FCA has made some welcome steps in this round of changes, meeting this ambition is just not possible under the current Priips framework.
“We remain concerned about the persistence of the uneven playing field between Ucits funds and investment companies.”
Kids were mandated for Priips in 2018, while Ucits funds continue to produce key investor information documents (Kiids), which the AIC says are not comparable.
The EU expects all funds to report on the same basis by the end of this year, while in the UK, Ucits funds have been told they do not need to produce a Kid until 2026.
Stone said: “This means the disparity across investment products will persist, to the potential detriment of investor confidence, and underlines the importance of acting without delay.
“We need an overhaul of consumer disclosures to make sure they are universally fit for purpose and can support the FCA’s broader consumer investment strategy.”
Regulatory changes
The FCA announced today (March 25) it will proceed with its proposals to remove the requirement for performance scenarios, because they were incompatible with the document producers’ duty to ensure the information presented is accurate, clear, fair and not misleading.
Currently Priips rules require providers to include performance scenarios in their Kids. These scenarios are calculated in line with specific methodologies prescribed in the Priips rules.
They require the use of historical data to calculate the potential returns that an investor may receive under different market conditions.
The FCA said: “It remains unclear that the underlying methodology could be sufficiently improved to ensure illustrations of potential future performance are informative to investors and not misleading across the full range of products within scope of the Priips regime.”
The regulator said that while it recognises that performance scenarios work for certain products, such as structured products, it cannot apply different regulations to different products so will have to scrap the scenarios altogether.
They will be replaced with a “narrative description” of performance.
The FCA will also introduce rules to clarify the scope of the Priips regulation for corporate bonds, making it clearer that certain common features do not automatically make them into a Priip.
It will also introduce “interpretative guidance” to clarify what it means for a Priip to be made available to retail investors.
The rules will be implemented during an implementation period, which begins today (March 25). Companies will have to have implemented the change by December 31 this year.
sally.hickey@ft.com
