This follows concerns that have been continually raised by our members around the fact that the all-encompassing nature of the Priips Key Information Document fails to reflect the way that most UK consumers approach investment, and that the vast bulk of Priip disclosure material is ignored.
The regime’s central objective is to enable consumers to compare the price, risk and performance features of different types of products, enabling them to make informed investment decisions. Notwithstanding these good intentions, the KID has proven to be problematic, giving rise to a wider range of concerns.
Back in 2018 when the Priips regime was introduced, the FCA’s then chief executive, Andrew Bailey, acknowledged that its implementation “has not gone as we hoped it would”. More recently, the FCA has conceded that KIDs produced in line with the requirements may contain information, particularly around product performance and risk, that is “very” or “seriously” misleading for consumers.
In the consultation, the FCA proposed a limited range of amendments aimed at tackling “the most pressing concerns with the Priips regulation”.
While some of the proposals are reasonable in themselves – for example, the FCA providing greater clarity about which products are within the scope of the regime – they are arguably “sticking plasters” as they do not address the fundamental problem, namely that the regime fails to provide investors with clear, comprehensible and worthwhile disclosures.
However, Pimfa and the wider industry have concerns about the general approach to reforms. Piecemeal amendments that only tackle the very worst aspects of the regime as they become obvious are not in the best interests of either consumers or the businesses issuing/selling products.
Although KIDs are meant to help consumers compare the features of all in-scope products against the same parameters, these amendments will simply result in the regime becoming more inconsistent – consumers cannot use KIDs to compare products if different rules for different products are operating behind a façade of uniformity.
A regime that seeks to cover and compare all product types, from the most basic funds to the most complex derivatives, does not reflect the way that most consumers approach investment – that is, with a rough idea of what they want to buy and wanting to draw comparisons between individual products of a given type. Disclosure might be more effective if it is more concise and more product specific.
The Treasury and the FCA should take the opportunity presented by Brexit to undertake a review of the entire UK Priips regime. In the context of the “wholesale review of the disclosure regime for UK retail investors” that it has promised, the Treasury should consider the broader issue of how information is provided to consumers and of how – and indeed whether – they engage with it.
Although the FCA’s proposed changes to the way in which product performance and risk are calculated and presented in the KID may provide some short-term relief from the most problematic elements of the regime, they will not address the fact that the regime as a whole is lacking in cogency and effectiveness.
We believe that, without fundamental review, the Priips regime will do more harm than good, providing consumers with sub-standard disclosures produced by companies that are obliged to follow sub-standard rules.
Liz Field is chief executive of Pimfa
