New Disclosure rules must be fit for purpose

Whilst the PRIIPs road was paved with good intentions, PIMFA has been critical of it since it came into effect and has welcomed the decision by the Government to replace the regime, inherited from the European Union, with a UK-specific product disclosure regime that will sit within the Financial Conduct Authority handbook. This comes as part of Chancellor Jeremy Hunt’s Edinburgh Reforms package.

The sheer amount of information which a KID must contain as a result of the regime can be overly complex, contains too much jargon and can be difficult to use for comparisons between different investment products. This brings the unintended consequence of confusion on the part of potential investors, which has been borne out both by client experience and our members’ feedback.

In our responses to both the Treasury’s recent consultation on the repeal of the PRIIPs regime and the FCA’s Future Disclosure review, we are supportive of the FCA’s wider review of the disclosure framework as well as HM Treasury’s decision to repeal the PRIIPS regime, in particular where this pertains to the availability of bonds for retail investors.

However, given the high-level nature of the FCA’s discussion paper in particular, we consider that there is still significant work to be done in order to deliver a UK-centric framework which is fit for purpose moving forward.

Looking at the broader disclosure landscape, PIMFA believes the focus current review must look hard at the broader purpose of disclosure and on what this 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.

In light of this, PIMFA has created a six-point plan of reform to the disclosure requirements and is calling on the FCA, in conjunction with HM 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.

We have an opportunity here to re-think disclosure from first principles – to create a simpler, more impactful disclosures regime for self-directed clients and to consider how information provided to advised clients can work with other regulatory protections, such as Consumer Duty, to deliver better outcomes and a more robust, UK-centric regulatory framework which is fit for purpose moving forward.