WHAT IS RETAIL DISCLOSURE?
“Retail disclosure” is a catch-all term for the very wide range of regulatory provisions that require firms to provide information to their clients. Amongst other things, these information requirements cover the features of individual products, warnings about particular areas of risk, the details of a firm’s charges, the terms on which a firm provides its services and reports on assets and cash held for clients.
WHY IS RETAIL DISCLOSURE IMPORTANT?
The material that PIMFA members provide on investment services and products is key to ensuring that consumers can make informed decisions about which services and products to use and assess whether those services and products are continuing to meet their needs over time.
In addition, disclosure places significant resource and cost burdens on firms because much of the information that they are required to provide is detailed, reliant on third-party data and complex to calculate.
HAS THE RETAIL DISCLOSURE REGIME DELIVERED?
There is a widespread view that regulatory disclosure requirements have resulted in consumers being overwhelmed with information that leaves them feeling more daunted than informed. Many of the disclosures that firms are obliged to provide are too long, too detailed and too complex to meet consumer needs.
Having concluded that elements of the UK disclosure regime do not work, the Government has decided to revoke the PRIIPs product disclosure regime inherited from Europe and to create a new UK-specific set of rules, our “PRIIPs” material provides further information. In addition, HM Treasury has set the FCA on the path of thinking about UK retail disclosure more broadly.
WHAT DOES THE RETAIL DISCLOSURE REVIEW AIM TO DO
In its December 2022 consultation on PRIIPs, HM Treasury sets out a number of principles that should guide development of a new UK retail disclosure regime. The new regime should:
- ensure that consumers have access to clear and useful information to make evidence-based decisions for their prospective investments;
- ensure that the disclosure that consumers receive is proportionate to the risk that they are taking in purchasing an investment and the complexity of the decision that they are making; and
- provide additional choice for retail investors and reduce burdens for firms.
WHAT NEXT FOR THE RETAIL DISCLOSURE REVIEW?
The FCA’s DP22/6 (Future Disclosure Framework) is driven by HM Treasury’s consultation on PRIIPs and by the principles that it has set for a broader review of UK retail disclosure. The FCA states that its aim is to develop “a flexible regime that reduces detailed disclosure rules”. DP22/6 is framed as a series of high-level questions about the likely effectiveness and practicability of various disclosure features. Although it contains no specific policy proposals, it seeks views on enhanced flexibility, proportionality, use of plain language, using digital media to enhance disclosure effectiveness and the creation of tailored and layered disclosures.
PIMFA’S POSITION ON THE RETAIL DISCLOSURE REVIEW?
PIMFA has previously made HM Treasury aware of the excessive amounts of information that firms are obliged to provide to their clients. Following on from this, PIMFA’s response to DP22/6 suggests that the focus of the FCA’s review must be on the broader purpose of disclosure and on what it can realistically be expected to achieve. As well as responding to the FCA’s questions about specific disclosure features, PIMFA ‘s response calls on the FCA, working with HM Treasury, to:
- reduce the weight placed upon disclosure as regulatory tool, recognising both low levels of consumer engagement and low levels of financial literacy/numeracy 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 [X] 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 MiFID, IDD, DMD etc.; and
- 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.
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Lead Regulatory Policy Adviser
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