PriipsDec 13 2022

FCA asks for views on Priips and Ucits replacement

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FCA asks for views on Priips and Ucits replacement
(Pexels/Anna Nekrashevic)

The Financial Conduct Authority has asked for views on what information investors should be given when they buy an investment product.

In a consultation published today (December 13), the regulator has requested feedback on what should replace the disclosures currently required by the packaged retail investment and insurance products regime (Priips) and undertaking of collective investment in transferable securities rules (Ucits), which will be revoked under the Edinburgh Reforms.

The FCA is responsible for designing and developing new rules which govern disclosures given to investors to support them to make informed investment decisions.

We want consumers to have the confidence to invest and understand the levels of risk involvedSarah Pritchard, FCA

This includes how much information to include about costs and charges, and level of investment risk.

Executive director of markets at the FCA, Sarah Pritchard, said the current rules make it very difficult for consumers to get the information they need in the way they need it to help them make effective investment decisions.  

“We now have the flexibility to design a new regime which is less rigid and more focused on the outcome we are seeking – we want consumers to have the confidence to invest and understand the levels of risk involved.

“This discussion paper aims to seek views from industry and consumers to help us design a disclosure regime that delivers to support that aim, and we welcome views from across the market to help us do so.”

Just 3 per cent of retail investors read regulated pre-contractual fund disclosure documents, according to the FCA, which it said indicates that the existing retail investment disclosure framework is "not supporting good customer outcomes".

The regulator added that retail disclosure can provide retail investors with the necessary information to make informed, effective decisions and allows product managers to highlight the features of their products, facilitating competition and building trust.

The FCA is seeking views on who should have responsibility for producing these disclosures, as well as how flexible the content should be within them.

This includes whether information should be “layered”, where firms produce some information upfront and then more details later on in the investment process, and how much thought to give on what information should be given at different stages of the process.

The FCA highlighted its awareness of 'anchoring bias', which is a behavioural bias that causes people to give more weight to the first piece of information received. 

Such a range of standardised and non-standardised documents can be confusing for investors and an unnecessary burden for firmsGovernment

"We want to align the delivery of information with the consumer journey, ensuring information is provided when it will be useful to consumers," the regulator said.

It also includes how the information is presented, including whether disclosures should be formatted in a way that can be easily processed by a computer, enabling comparisons to be made.

Finally, the regulator wants to know the industry’s view on how best to decide when a product is suitable for the retail market or not.

The consultation closes on March 7 next year, and firms will be required to follow the current Priips guidelines until new rules come into force.

Not fit for purpose

In the Edinburgh Reforms, announced by chancellor Jeremy Hunt last Friday (December 9), the Priips regulations were described as not fit for purpose.

Both the Priips and Ucits regulations were introduced by the EU, and onshored by the UK after Brexit.

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”.

sally.hickey@ft.com