On 26 July 2018 the Financial Conduct Authority (FCA) published a Call for Input for firms and consumers about their initial experiences of the requirements introduced by the Packaged Retail and Insurance-based Investment Products (PRIIPs) legislation. The PRIIPs legislation, which includes the European regulation and the Regulatory Technical Standards (RTS), applies to manufacturers, and advisers or distributors offering PRIIPs to consumers in the European Economic Area (EEA), and requires them to provide standardised Key Information Documents (KIDs). Its aim was to improve consumer understanding of investments, to enable comparison between investments and help consumers make informed decisions by standardising the disclosures. KIDs must explain, in clear and simple language:
- What the product is;
- Its risks and potential rewards, including a summary risk indicator and performance scenarios (that should be illustrative and not a forecast of future return);
- Its costs, including implicit transaction costs (which are included in the price of a transaction).
The Call for Input is to address the FCA’s and the industry’s concerns on the effectiveness of certain requirements of the legislation. In particular on the prescribed methodologies to calculate costs (actual, estimated, etc.), and on the lack of clarity about the scope of the legislation (e.g., whether some corporate bonds or UK real estate investment trusts are in or out of scope). The FCA is aware of the industry’s concerns about the practical application of the methodology to calculated actual costs, the presentation of the performance scenarios, and of the fact that many firms have faced unexpected technical issues.
Th Call for Input follows a statement the FCA issued in January this year (less than one month after the implementation of the legislation) to address concerns related to performance scenarios.
The FCA acknowledges the broader regulatory context, where there have been reforms in the investment product market at both domestic and EU level, with different and sometimes overlapping, disclosure requirements in terms of timing, interaction, and implementation (such as MiFID II, the Insurance Distribution Directive with effect in October 2018, the review of the Pension Act 2014 that will be subject to consultation in Q4 this year).
Subject to its findings the FCA may consider running workshops to support firms in understanding and complying with the relevant requirements.
Responses to the Call for Input, and accompanying evidence, should be submitted by 28 September 2018 using this form, or by contacting the FCA directly by email ( PRIIPsCfI@fca.org.uk ), or by post (Retail Distribution Policy, Strategy & Competition, Financial Conduct Authority, 12 Endeavour Square, London E20 1JN).
Firms and consumers, as well as their representative bodies, should consider contributing to this initiative. It would be helpful to receive feedback from those directly affected by the PRIIPs legislation: in this way, the FCA could start addressing the issues raised by the industry, and investors might finally get all the advantages of the legislation.