The government has given the Financial Conduct Authority the power to create a new regime on what information should be provided when a member of the public buys an investment product.
In the Edinburgh Reforms announced today (December 9), chancellor Jeremy Hunt said the government plans to revoke the packaged retail and insurance-based investment products regulation (Priips).
In the announcement, the government said it is “crucial” that everyone is able to take advantage of the benefits of the success of the UK as a “leading global financial centre”.
“The UK has a significant and rapidly growing retail investment market.
“However there remain areas where further reforms can build upon existing strengths and widen access.”
Chief executive of the Association of Investment Companies, Richard Stone, said the investment company industry has just breathed "a collective sigh of relief" on seeing the proposed abolition of the regulation.
“We...will be arguing for a disclosure regime which helps investors make better investment decisions and puts investment companies and open-ended funds on a level playing field," he said.
"The FCA should act swiftly to sweep away the confusing mishmash of disclosures and put in place a fair and transparent framework.”
It will be up to the FCA to set this out in detail Government The government said the current Priips regulations are “not fit for purpose”.
The Priips regulation has proved controversial, mainly due to the inclusion of performance scenarios in the key investor documents (Kids).
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 government said the “highly prescriptive” format requirements of the Kid has restricted the flexibility with which firms can communicate effectively with their clients, and leads to companies producing their own fact sheets alongside the Kid.
“Such a range of standardised and non-standardised documents can be confusing for investors and an unnecessary burden for firms,” it said, and furthermore, it can restrict the choice of retail investors.
The government also criticised key investor information documents, which Ucits funds are required to produce.
There has previously been discontent over this, with the AIC saying the two disclosures are “not comparable”.
The government said it has instructed the FCA to determine the format and presentation of the new disclosures, saying certain information, such as costs, should be standardised.
“It will be up to the FCA to set this out in detail”.
The government’s consultation will close on March 3 next year.
Priips regulation
The FCA had previously removed performance scenarios from the Priips regulation, after industry criticism, though the AIC acknowledged that the regulator had done all it could to reform the regulations without being given further powers.
In March this year the regulator said it remained unclear that the underlying methodology could be sufficiently improved to ensure illustrations of potential future performance are "informative to investors".
The Kids were due to be replaced with a “narrative description” of performance by the end of this year.
The FCA also planned to 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.
However, it is unclear how much of this work will be carried forward in the new regulation.
sally.hickey@ft.com
