The Association of Investment Companies has called the Financial Conduct Authority's proposed Priips reforms an “inadequate effort” and warned of the ongoing risks to vulnerable customers.
In a response to the regulator’s 'Priips - Proposed scope rules and amendments to Regulatory Technical Standards' consultation, the AIC said given the long-standing and recognised problems with the Key Investor Documents (Kids), the proposed reforms “only tinker” with the requirements rather than “seeking to tackle the fundamental flaws of Kids”.
“The longer Kids are provided to retail investors, the greater the risks that vulnerable consumers will be misled and suffer financial harm,” it said in its response released today (October 18), adding: “enough is enough”.
The AIC called for a “bolder” approach to the reforms. It wants the Treasury to launch a review of the regulation of Priips alongside this month's Budget.
Richard Stone, chief executive of the AIC, said: “Far from helping people make better informed decisions, these documents are misleading investors and distorting the market, with Ucits funds still producing an entirely different disclosure that is not comparable.
"We call on the Chancellor to announce a more meaningful review alongside the Autumn Budget.”
The AIC summarised its issues with Kids, namely that they are compared with the Key Investor Information Document (KIID) currently produced by Ucits funds, when they were not like-for-like, which was “highly misleading and potentially confusing for customers”.
The Kid is a mandatory legal document that all packaged retail and insurance-based investment products have to provide to investors.
Current regulation requires this document to include a prediction of future returns using a methodology that takes into account the returns achieved by the fund in previous years.
But a number of industry experts have said that these documents are flawed and can be misleading, and the FCA addressed these concerns through a consultation launched on July 20. This included a proposal to scrap the performance scenario requirement, however the AIC and other industry bodies have said this doesn't go far enough.
In September, Pimfa said the consultation contained “piecemeal amendments” which do not constitute the best approach for investors.
The AIC warned the Kids may distract buyers from more useful disclosures, and “offer meaningless disclosures on risk and return”.
The documents also created “compliance burdens” for no benefit, the trade body added, and the reforms proposed by the regulator did not solve any of these issues.
The AIC added the Priips reporting exemption given to Ucits funds earlier this year should be extended to all investment companies until new legislation has been introduced.
The watchdog is aiming to amend the UK version of the EU regulation by the end of this year, before rules come into effect in January 2022.
The exemption, which has been extended by five years to December 31 2026, means that instead of producing the Priips key information document, Ucits funds sold in the UK will continue to be required to provide a key investor information document as per the requirements of the Ucits directive.