FCA proposes overhaul of UK PRIIPs disclosure regime

The UK Financial Conduct Authority (FCA) has outlined plans to replace the existing disclosure regime for packaged retail and insurance-based investment products (PRIIPs).

In a discussion paper (27 pages / 319KB PDF) published earlier this week, the regulator invited feedback on proposals to create a new regime that is more “supportive, engaging, accessible and flexible” than the current system. It comes after the Treasury launched a consultation (25 pages / 256KB PDF) last week on its plans to revoke the PRIIPs Regulation and the Undertakings for Collective Investment in Transferable Securities (UCITS IV) Directive. These proposals, which formed part of the wider ‘Edinburgh Reforms’ package, would give the FCA formal responsibility for designing and developing new disclosure rules.

The FCA said the new regime should “safeguard investor protection”, while increasing choice and reducing “unnecessary or over prescriptive constraints on firms”. The discussion paper focuses on delivery of disclosure, including when and how information is communicated, as well as how it should be presented to consumers.

The FCA said that “good disclosure” should be “accessible and engaging and have enough flexibility to allow information to be presented optimally for the consumer”. It added: “This will ensure that retail investors have access to clear and useful information and provides firms with the flexibility to provide information in the way they think is beneficial.” The discussion paper also focuses on what information should be disclosed to retail investors prior to entering a contract, and what prescription, if any, the FCA should have over the information provided.

Hannah Ross of Pinsent Masons previously worked at the FCA and helped to prepare the regulator’s March 2022 PRIIPs policy statement. She also drafted related rules and regulatory technical standards amendments. Ross welcomed the FCA’s discussion paper as a “positive first step” in creating an alternative to the existing retail disclosure rules. “The current regime limits innovation and is overly burdensome to firms - yet is often overwhelming and incomprehensible to retail consumers,” she said.

“There’s excellent potential for the FCA to create a robust, clear and flexible retail disclosure regime, which is simpler for firms to implement yet better protects consumers, enabling them to make informed and effective investment choices. Firms should engage with the discussion paper, sharing their expertise and any innovative ideas they have, such as on future-proofing retail disclosure; how an interactive disclosure model and disclosure dashboard might work; and whether sustainable disclosure requirements (SDR) should be incorporated into a wider disclosure framework,” Ross said.

She added: “All this will be refreshing for firms and consumers to hear, but it remains to be seen whether the FCA can deliver these reforms while other retained EU legislation governing retail investment disclosure – such as MiFID II, the Insurance Distribution Directive and the Distance Marketing Directive – remain in place. As the FCA acknowledges, the creation of a simplified, innovative and cohesive model may not be possible until the Treasury considers what to do with these wider legislative constraints.”

Chris Riach of Pinsent Masons said: “The Treasury’s consultation made it clear that the future disclosure framework will sit in the FCA handbook rather than in legislation as is largely the case today. Tasked with knitting together this framework and, crucially, avoiding the sins of the past, it is not surprising to see the FCA begin proceedings with an open discussion and inviting views from across the financial services sector.”

“While existing PRIIPs and UCITS obligations are the main focus of the review, life companies in particular should note that the FCA is also inviting views on COBS 13, which includes the heavily prescriptive projection requirements for pensions applying today. This is a great opportunity to raise any specific concerns where current detailed requirements may be seen by firms as preventing innovation in disclosure in the interests of customers and so hampering efforts to align with the upcoming Consumer Duty,” Riach said.

He added: “It's also clear from both the Treasury and the FCA publications that hyper-comparability between different product types is no longer seen as a key objective for the framework. In particular, the discussion paper provides an opportunity to inform the level of prescription that should apply to costs and charges, risk and performance disclosure and, conversely, why some products may benefit from distinct methodologies. Representations from firms on this point would be made most strongly if informed by testing activities or other real customer experiences.”

The FCA has already made changes to the PRIIPs rules post-Brexit in order to address some of the areas of harm which post the most risk to consumers. Firms will still be required to follow PRIIPs and UCTIS disclosure requirements until the new regime comes into effect.

The FCA is seeking views on when and in what format information can be delivered to consumers to ensure that what is provided is useful and supports the experience of buying a product. The FCA is also considering who should have responsibility for producing disclosure. Comments on the proposals are requested by 7 March 2023.