In May, Apricity's Christian Markwick wrote that we are well and truly into the Consultation Paper Season, which was true. But little did we know the regulators were planning on spoiling us quite so much in the weeks following with their business plan surveys (Covid and Credit Broking) and now yet another consultation paper.
July’s treat is the catchy 'CP21/23 – PRIIPS – Proposed scope rules and amendments to Regulatory Technical Standards' which focuses on disclosure surrounding Package Retail and Insurance-based Investment Products (PRIPPS).
The consultation paper addresses some of the concerns around the potentially confusing information in Key Information Documents (KIDs) as they currently stand.
Currently, these documents include performance scenarios that are based on a technical calculation dictated in the current PRIIPS rules.
Industry feedback to the regulator has raised that these illustrations were potentially detrimental in the fact they were misleading to consumers.
The regulator reacted to this as early as July 2018 with their ‘Call for Input’ which led to FS19/1 PRIIPS Call for input Feedback Statement in Feb 2019.
Due to the regulatory red tape associated with changing the legislation of this, nothing was changed off the back of this feedback statement, even though the regulator was aware of the issues with the methodology used in the creation of these documents.
In short, following the UK’s exit from the EU on 31 January 2020, the PRIIPS regulation was moved to domestic law, which gave ministers the power to change legislation a lot easier than previously restricted. And with this, we have CP21/23!
In this consultation paper, the FCA is proposing
to remove these scenarios from the KIDs, and instead include factors that are likely to affect future performance. This has been branded a ‘narrative requirement’
to review the Summary Risk Indicator (SRI), which is a 1-7 risk score given to investments based on market and credit risk classification. The regulator is also looking to ensure VCTs have a minimum SRI of 6, and
to remove some corporate bonds from being classed as a PRIPP.
The regulator is welcoming responses as long as they are submitted by 30 September 2021.
While the implications of this CP on financial planners is minimal in terms of prep work for this potential change, planners alike will have to familiarise themselves with the changes in KIDs that they supply, and explain, to their clients.
This is a clear, and welcome example of the regulator listening to the voices in the industry and suggesting policy to protect clients.
We will continue to update when the consultation closes and further direction is confirmed.