PIMFA has outlined a six point plan to reform disclosure requirements following the Government’s decision to repeal the Packaged Retail and Insurance-based Investment Products (PRIIPs) regime.
PIMFA has been critical of the PRIIPs regime since it came into effect and has previously welcomed the decision by the Government to replace the regime which the UK inherited from the European Union (EU), with a UK-specific product disclosure regime that will sit within the Financial Conduct Authority (FCA) handbook.
In particular, PIMFA has previously welcomed the Government’s acknowledgement of the negative impact the PRIIPs regimehad on the availability of bonds for retail investors. PIMFA has also been pleased to see the Government recognise that efforts to compare the characteristics of a vast range of products through a single document have resulted in Key Information Documents (KID) that might provide misleading information and could potentially lead to consumer harm.
Looking at the broader disclosure landscape, PIMFA believes the focus of the current review must be on the broader purpose of disclosure and on what disclosure can realistically be expected to achieve. 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.
Consequently, PIMFA is calling on the FCA, in conjunction with the Treasury, to:
- 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, 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, Chief Executive of PIMFA, commented: “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 re-think 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.”