AJ BellSep 26 2017

FCA refuses to review point of sale disclosure

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FCA refuses to review point of sale disclosure

The Financial Conduct Authority (FCA) has rejected calls for a fundamental review of point of sale disclosure rules despite acknowledging lengthy documentation can confuse customers.

In July, AJ Bell wrote to Christopher Woolard, director of strategy and competition at the FCA, to highlight the failings of the disclosure regime for pension and investment products.

In particular, the complexity and sheer volume of documents providers and advisers are required to issue at the point of sale – including suitability reports, key features illustrations (KFIs), key investor information documents (KIIDs) and sometimes transfer value analysis (TVAS) – leaves people in danger of investing in products they don’t understand and that may not be suitable for their needs.

In his response, Mr Woolard agreed lengthy disclosure documents can confuse customers and said the regulator intends to publish further non-handbook guidance on effective consumer communication later this year.

But Mr Woolard indicated the FCA is currently only prepared to make “iterative” improvements to point of sale disclosures where they see consumer benefit, rather than far-reaching changes.

However he did say that a broader review would be considered in future where there is a clear case of consumer harm.

The regulator also appeared to lay responsibility for point of sale disclosure firmly at the door of advisers and product providers saying that ‘it is for firms, rather than the FCA, to determine how to communicate with consumers’.

Andy Bell, chief executive of AJ Bell, said: “When it comes to point of sale disclosure we think the risk of consumer harm is clear.

“The FCA agreed lengthy documents often confuse customers and given the length of current disclosure documents this is an admission the current regime does not work.

“With wide scale reviews of the asset management and platform markets under way it is hugely disappointing the FCA are not prepared to do the same for practical areas where there is a clear risk of consumer detriment.

“We agree there is also a responsibility for firms to communicate effectively with consumers but the FCA has created an environment over the years where companies feel like they need to provide swathes of information to avoid regulatory sanction.

“Therefore the FCA has a duty to look at that environment to give companies the confidence to make improvements.

“The further guidance on effective consumer communication that Mr Woolard confirmed would be published later this year is a step in the right direction but to realise meaningful change we need to stop tinkering at the edges and engage in a deep dive review of point of sale disclosure as a whole.”

Alistair Cunningham, financial planning director of Wingate Financial Planning, said: “The FCA are not solely responsible for the increase in the complexity of disclosure documents, and my feeling is the layers of iterative changes have made things less clear, rather than more clear.

“KIIDs are a very good example of well intended paperwork that often confuses, rather than aides understanding.”

emma.hughes@ft.com