The government has confirmed that it will repeal the EU-enacted packaged retail and insurance-based investment products (PRIIPs) regulation following a consultation with the financial services sector.
Last December, the Treasury launched the PRIIPs consultation as part of the chancellor’s Edinburgh Reforms.
These set out a package of changes including creating a regulatory framework tailored to the UK after exiting the European Union.
The PRIIPs regulation was first introduced in January 2018 with the aim of providing greater transparency and standardising disclosure rules for investors.
It applies across a wide variety of financial instruments which are sold to UK retail investors.
This where the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or the performance of one or more assets that are not directly purchased by the investor.
However, after the UK left the EU, the government has prioritised repealing EU legislations including PRIIPs.
The government reasons for the legislation was set out in the consultation to the industry in December. It said the existing PRIIPs regime has issues in the following areas:
- Prescriptive format requirements have not led to improved consumer understanding, and are overly burdensome for firms to produce
- The objective of comparability across such a wide variety of products has led to misleading information being presented to retail investors e.g. on risks and costs
- Some feedback suggested that the compliance costs associated with the PRIIPs Regulation has dissuaded some firms from making their products available to UK retail investors, reducing consumer choice
This month (July) the government published the responses of the consultation.
It said that there was a unanimous support from the industry to repeal the PRIPPs regulation.
It also said the stakeholders highlighted their concerns with the “misleading nature of some information – specifically relating to cost and risk disclosure – contained within the PRIIPs key information document (KID).
“More broadly, many respondents called for the government to reform the cost and charges disclosure requirements established under the Markets in Financial Instruments Directive (MiFID II), to improve how costs are presented to retail investors under the new regime.”
However, a minority of stakeholders proposed that the government undertake a more holistic review of disclosure requirements alongside the focused review of the PRIIPs regime.
On the new regime framework that will replace PRIIPs, the government said most stakeholders agreed with its proposed principles for the new regime. They highlighted the importance of ensuring retail investors have access to clear and useful information.
However, several respondents called for the government to provide greater clarity on how a ‘proportionate’ burden could be defined, noting that what is proportionate may differ depending on the type of investment product.
The government confirmed that it will ensure the Financial Conduct Authority (FCA) has all the tools it needs to design a new regime that considers the concerns raised in relation to products in scope of the new UK disclosure regime.
That includes accuracy of disclosure information that balances flexibility with comparability to ensure consumers are provided with the appropriate information to make effective investment choices.
In December the FCA outlined plan to scrap undertaking of collective investment in transferable securities rules (UCITS).
Now the government said it will work with the FCA to bring UCITS vehicles into scope of the new retail disclosure regime.
