Another week, and another headline about PRIIPs.
Since it came into effect on 1 January, there have been concerns over the regulation and its requirement for firms to report performance in standardised Key Information Documents.
On 26 July, the Financial Conduct Authority issued a Call for Input, asking for firms’ initial experiences with the new rules.
The regulator has taken action follows months of unfavourable headlines about the PRIIPs regulations and, in particular, about their requirement for firms to outline performance in a Key Information Document or KID.
What are the problems with PRIIPs?
Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs), came into force on 1 January, with the aim of extending the standards of consumer protection introduced by MiFID II to insurance-based investment products.
Specifically, it aims to improve consumer understanding and outcomes by standardising the disclosures retail investors receive. This, it is hoped, will make it easier for investors to compare competing products. The regulation applies to a wide range of products.
If you need a refresher, you can read up on exactly what PRIIPs regulation is and how to comply.
Ever since it came into effect, there have been rumblings of discontent from within the industry. Before January was out, the regulator was having to clarify expectations on PRIIPs communications – specifically around the performance scenarios required to be included in KIDs.
By February we were reporting that concerns about the regulation were making headlines, and at the FCA’s Asset Management Conference in June, chief executive Andrew Bailey made it clear that the Authority was looking to address concerns around the regulation’s disclosure requirements.
The prescriptive rules around the format and content of these KIDs, and the way performance data has to be presented, have caused particular concern. Some specific issues relate to:
- The scope of the regulation – in particular, whether certain products are in or out of scope
- The practical aspects of certain cost and risk disclosure requirements in KIDs
It’s not surprising, then, that these are the main areas covered by the FCA’s request for feedback.
What is the Call for Input asking for?
The FCA is seeking feedback on the following aspects of the PRIIPs legislation:
- Cost disclosure
- Risk disclosure
- Any other experiences of preparing information in, or using, a KID
The Call for Input document includes specific questions that firms should answer, as well as wider suggestions of areas where firms might like to feed back. For instance, in relation to KIDs, it asks for input on:
- how the KID is presented
- the prominence of information in it
- examples where the mandatory wording causes issues
- how the KID is provided
- how the KID and supplementary material is working for multi-option products
Who should respond?
The paper states that the Call for Input will be of interest to:
- consumers and their representative bodies
- firms that manufacture PRIIPs and those who advise on or distribute PRIIPs.
This second category might include: issuers of securities that are classed as PRIIPs; life companies; discretionary investment management firms; fund managers; wealth managers; stockbrokers and other advisers to retail clients on funds; structured products and derivatives; financial advisers and any firms operating retail distribution platforms.
How can firms respond?
You should send input and any accompanying evidence to the FCA by 28 September 2018.
This can be via a form on the FCA website, in writing, to Retail Distribution Policy Strategy & Competition, Financial Conduct Authority, 12 Endeavour Square, London E20 1JN, by telephone on 020 7066 1000 or via email to PRIIPsCfI@fca.org.uk.
The regulator will review the responses and aim to publish a feedback statement in early 2019.
How to tackle your PRIIPs and KID challenges in the meantime
While the FCA aims to address some of the perceived failings around PRIIPs and its requirements, this won’t be instant. And in the meantime, firms need to work within the regulation’s parameters.
If you are struggling with some of its demands, you can find out how to avoid some of the potential pitfalls in preparing your KIDs and read more about how you can ensure they are sufficiently user-friendly.
And if you want suggestions as to how you can improve your client-facing documents, you might find our case study useful. It details how AIG transformed their new approach to producing customer-facing documents and outlines how they saved and money by improving their production process.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.