FCA Statement on Communications in Relation to PRIIPs

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The FCA has published a statement addressing concerns about the performance scenarios in the Key Information Document (KID).

Following the recent implementation of Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation, manufacturers are required to prepare and publish for each of their PRIIPs a stand-alone, standardised document, that contains details about risks, performance scenarios, costs and other pre-contractual information. These numbers must be calculated based on parameters included in the Regulatory Technical Standards (RTSs). This requirement has to be read in conjunction with Principle 7 of the FCA’s Principles for Business, that requires firms to ensure their communications with clients are fair, clear and not misleading, and with COBS 2.1.1R, that requires firms to act honestly, fairly and professionally, and in accordance with the best interests of their clients.

The FCA has indicated that by applying some RTS calculation rules to produce performance scenario information, “for a minority of PRIIPs”, the performance scenario may be overly optimistic and, therefore, mislead investors. The solution suggested by the FCA is for PRIIPs manufacturers to provide additional explanatory materials to put the calculations in context and to set out any additional relevant information for investors to consider. Firms selling or distributing PRIIPs can, instead, provide additional explanation as part of their communications with clients.

Whilst is its understandable that the FCA is not in a position to override European legislation and RTSs by authorising alternative calculation methods, the solution of adding extra pieces of information suggests that a KID may not be fully reliable and does not appear to an easy one for manufacturers and distributors to get right. The original aims of the PRIIPs regulation was to help investors to better understand and compare them and to make the KID more consumer-friendly. It is disappointment that this is already posing challenges that require additional work by firms within such a short period from PRIIPs implementation.