The Personal Investment Management & Financial Advice Association (Pimfa) has called for the Financial Conduct Authority (FCA) to simplify disclosure requirements as the regulator mulls a replacement for the packaged retail and insurance-based investment products (Priips) legislation.
In December, the government announced its intention to replace the regulation, inherited from the EU, with a UK-specific product disclosure regime within the FCA’s handbook.
At the time, HM Treasury’s Priips and UK Retail Disclosure Consultation said the key information documents (Kid) that accompany products were “unnecessarily prescriptive measures that led to information being presented to investors in unhelpful or, worse, misleading ways”.
The FCA then launched a discussion paper seeking industry views on the best way to replace the regulation, with 7 March the deadline for submitting responses.
Priips legislation mandates that a Kid must contain specified information, such as potential risks and returns, the duration for which an investment should be held, and more.
Pimfa said, while it welcomes plans to scrap the current regulation, it believes any review should place a broader focus on the purpose of disclosure.
It said: “Clients frequently identify the huge amounts of mandatory information they receive as one of the most negative features of their investment experience. Consumer engagement is unlikely to improve unless this can be significantly reduced and simplified.”
Six-point plan to replace Priips
The key points Pimfa has highlighted are as follows:
- Reduce the weight placed on disclosure as a regulatory tool, recognising both low levels of consumer engagement and low levels of financial literacy in the adult population;
- Reduce the range of assets subject to any post-Priips product regime, by excluding assets such as retail bonds and convertibles, and focussing on mass market products such as funds;
- Take advised business out of the post-Priips product regime, relying instead on the suitability letter to provide consumers with information that is tailored to their needs and circumstances;
- Develop ‘headline’ disclosures that are short and pithy, focussing on ‘The six things you need to know about this product before buying’;
- Publish a coherent programme for reviewing retail disclosure across-the-board – not just Priips but all rules requiring information to be provided to clients under the Markets in Financial Instruments Directive (Mifid), Insurance Distribution Directive (IDD), Distance Marketing Directive (DMD) etc;
- Create a central retail disclosure sourcebook in the FCA Handbook, making it easier for firms to identify and comply with the wide range of rules relating to information provision.
Liz Field, Pimfa chief executive, said: “Pimfa has for many years opposed the Priips regime, and by and large, our opposition to Priips has been borne out by client experience and firm feedback.
“Like it or not, many clients do not engage with disclosure material, some because they are not able to but many more because they are simply not interested. We have an opportunity to rethink disclosure from first principles – to create simpler and more impactful disclosures for self-directed clients and to consider how information provided to advised clients can work with other regulatory protections to deliver better outcomes.
“As always, we stand ready to work with the government and the FCA to create a disclosure regime that works for the wide range of ways retail clients engage with financial services.”
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