The Financial Conduct Authority has delayed proposed changes to the Key Investor Documents (Kids) under the Packaged Retail and Insurance based Investments Products Regulation (PRIIPs).
The watchdog is aiming to amend the UK version of the EU regulation by the end of this year, and had initially anticipated the new rules would come into force in January 2022.
However in the regulatory initiatives grid released yesterday (November 1), the FCA said it would publish its policy statement in Q1 next year which will set out when the rules will take effect, along with any implementation period.
Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “We are encouraged that the FCA has listened to industry concerns and is taking its time to get the changes to Kids right.
“This will give the regulator breathing space to consider how best to change Kids to help investors make better decisions.
“We hope one option being considered is bringing Kids’ performance disclosures in line with those of Ucits funds.”
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 these documents are flawed and can be misleading, and the FCA addressed these concerns in 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.
The AIC recently criticised the FCA’s proposed Priips reforms as 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 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.
Meanwhile the AIC has said 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 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.
Stone said getting more people involved in investing was a goal which policymakers and the industry shared, but to make it work, consumers have to have confidence in the products they’re offered. This can only happen if they have reliable and accessible information, he said, and that’s something that Kids do not provide.
“The FCA has recognised the need for reform but it can only do so much,” he said.
“The Treasury should play its part and launch the promised review of consumer disclosures to bring all investment products into an effective disclosure regime. Brexit has given the government the chance to do things better and we urge it not to delay any further.”
sally.hickey@ft.com
