FCA consults on post-Brexit divergence for PRIIPS regulation

Jul 25, 2021 12:00:00 AM

What has happened?

In July 2021, the FCA set out, in its Consultation Paper CP 21/23, proposals to change disclosure documents provided to retail investors under the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation. The changes are intended to provide more clarity to consumers about what the products are, the risk presented and information to help understand likely future performance.

What do you need to do?

Firms that produce, advise on or sell PRIIPs are required to provide a Key Information Document (KID) in relation to the product. However, for some products, the KID has the potential to contain misleading information as a result of the methodologies used in producing performance scenarios and summary risk indicators. There has also been a lack of clarity within the PRIIPs regime over the corporate bond market. This has led HM Treasury to confirm that the UK will diverge from EU PRIIPs regulation to better protect its consumers.

The Financial Services Act 2021 allows the FCA to specify whether a product can be classified as a PRIIP under the PRIIPs Regulation and to define was is meant by ‘performance information’. The FCA has a range of options on how PRIIPs manufacturers can produce and present performance information most effectively in the KID in order to reduce the risk to consumers.

The FCA is consulting on the most serious concerns over PRIIPs and it proposes to:

- Clarify the scope of the PRIIPs regulation to clarify that certain common features of corporate bonds do not make them into PRIIPS and to provide guidance on the meaning of PRIIPs being ‘made available’ to retail investors, and
- Amend the PRIIPs Regulatory Technical Standards to require written explanation on performance in the KID, combat the potential for PRIIPs being assigned an inappropriately low summary risk indicator in the KID, and address concerns over applications of the slippage methodology when calculating transaction costs.

Subject to the outcome of this consultation, the FCA plans to amend the PRIIPs RTS by the end of 2021, with any changes made coming into effect on the 1st January 2022.

How can we help you?

If you’d like to know more about how we can help you with your PRIIPs arrangements, or with any other regulatory compliance issues, our expert team is here to help.

Blog