PIMFA
PACKAGED RETAIL INVESTMENT AND INSURANCE PRODUCTS (PRIIPS)
PRIIPs is a retained EU regulatory regime in the UK that applies to the distribution of Packaged Retail and Insurance-based Investments Products to retail clients. The regime covers a very wide range of investment products, from the most “vanilla” investment funds to the most complex derivatives.
PIMFA members play an important role in distributing PRIIPs to retail clients. Consequently, we want to ensure that the product information that our members are required to provide to their clients is as concise, engaging and useful as possible.
- WHAT DOES THE PRIIPS REGIME AIM TO DO? THE INTRODUCTION OF PRIIPS IN 2018
Taking effect on 1 January 2018, the EU derived PRIIPs regime aimed to improve the quality of information provided to retail investors purchasing a wide range of financial products including non-UCITS collectives, investment trusts, VCTs, structured products, options, futures, CFDs and certain debt securities. The Key Information Document presents data on product risks, costs and performance in a standardised format so that potential investors can compare different types of products and come to informed investment decisions.
Product manufacturers are responsible for producing the KID while product distributors – firms that advise on PRIIPs or execute deals in PRIIPs – are required to provide a KID “in good time before” a retail investor is bound by any contract.
However, despite the aim, the PRIIPS regime, and specifically KIDs, have not provided investors with the clear and concise information required and the vast majority of PRIIPs KIDs provided by distributors are not reviewed by retail investors.
- REPEAL OF THE UK RETAINED EU PRIIPs REGULATION
In December 2022, HM Treasury published a consultation which acknowledged that “The PRIIPs Regulation …. is not fit for purpose.” Consequently, the Government has decided that UK PRIIPs legislation will be revoked. It will be replaced by a new product disclosure regime that will sit within the FCA Handbook, enabling the regulator to review and update it as markets evolve.
HM Treasury’s consultation seeks views on how a new product disclosure regime can meet consumer needs without repeating the mistakes of PRIIPs. While making clear that PRIIPs reform is its immediate priority, the paper also recognises that there is a need for a wider review of retail disclosure requirements and sets out the principles that will govern this process.
Alongside the HM Treasury paper, the FCA issued Discussion Paper 22/6 seeking preliminary feedback on how it should approach developing a replacement product regime for PRIIPs and wider reform of retail disclosures. Our “UK Retail Disclosure” material provides further information.
- PIMFA POSITION ON THE PRIIPS REGIME AND REPEAL
Since the earliest days of the regime, PIMFA has highlighted the many flaws of issues with the KID as a disclosure document – too long, too complex and frequently misleading – and has called for a fundamental review of the entire PRIIPs approach.
Consequently, PIMFA has welcomed HM Treasury’s decision to revoke the PRIIPs Regulation and to replace it with a UK-specific regime. In responding to the consultation, we have made clear that product disclosure should not place needless constraints on investor choice as the PRIIPs regime currently does but should instead provide information that is consistent, straightforward and concise, helping consumers to choose between products of similar types.
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23 September 2024
HMT Announces Reforms to Retail Disclosure Requirements for Investment Trusts
The Government has announced it will lay legislation to exempt closed-ended UK-listed investment funds from the requirements of the current Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and parts of Articles 50 and 51 of the Markets in Financial Instruments Directive (MiFID) Org Regulation.
This interim exemption (with effect from 19 September 2024) will remain in effect until the start of the new UK retail disclosure framework, subject to Parliamentary approval of the Consumer Composite Investments (CCIs) legislation (new disclosure framework) and the FCA’s consultation process for the CCI regime.
During this period of exemption:
- Investment companies and their Alternative Investment Fund Managers (AIFMs) can choose not to publish a Key Information Document (KID). This means that old versions can be removed from websites.
- Distributors have no obligation to provide a KID to their clients before they purchase an investment company’s shares.
- Client facing firms in the UK will be able to make ‘zero’ cost disclosure to their clients in respect of the company shares they have invested in.
- Client facing firms in the UK will have no costs in relation to investment company shares when making aggregate cost disclosures to clients.
- Company factsheets need not include a cost figure based on the PRIIPs methodology. However, they must continue to meet consumer duty requirements to be fair, clear and not misleading.
- For UK purposes, AIFMs can make a ‘blank’ cost disclosure in the European MiFID Template, which is used to distribute information on costs to the market.
You can access the statement here, and if you have any queries, please contact Simon Harrington.
