FCA clarifies expectations on PRIIPs communications

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On Wednesday this week (24 January), the Financial Conduct Authority issued a statement on communications in relation to PRIIPs.

This statement responded to concerns raised about the performance scenarios in the Key Information Document (KID) – a requirement of the new Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation.

What is PRIIPs?

The Packaged Retail and Insurance-based Investment Products Regulation came into force on 1 January. Central to firms’ ability to comply with PRIIPs is the need to produce a Key Information Document for retail investors and the firms that advise them.

The KID details risks, performance scenarios, costs and other pre-contractual information. It has a very prescriptive format, with a series of Regulatory Technical Standards governing the way information is calculated and provided.

The KID is designed to deliver on the FCA’s requirements for communications to be fair, clear and not misleading.

Concerns around KID performance information

The FCA statement is designed to address concerns around ‘performance scenario’ information in the KID. We reported in a recent blog about concerns that had been raised around this.

Specifically, there is a concern that the ‘performance scenario’ information required in the KID may appear too optimistic and therefore has the potential to mislead consumers.

This might be for a number of reasons – the strong performance of markets over the last five years influencing future performance scenarios; the way calculations are required to be done, or errors in the calculations.

The potential for providing misleading performance data is just one of a number of identified pitfalls firms need to beware of when producing PRIIPs documents.

How has the FCA responded?

The regulator is allowing firms to provide additional information to support and expand on their KID data. It said that:

“Where a PRIIP manufacturer is concerned that performance scenarios in their KID are too optimistic, such that they may mislead investors, we are comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider.

“Where firms selling or advising on PRIIPs have concerns that the performance scenarios in a particular KID may mislead their clients, they should consider how to address this, for example by providing additional explanation as part of their communications with clients.”

The PRIIPs regulation and KID requirements are part of a drive to improve the documentation customers receive, making it easier for consumers to make the most appropriate decisions for their circumstances.

If you want to produce user-friendly, compliant KIDs, our blog on How to avoid pitfalls when preparing your PRIIPs documents is a good start point. Familiarising yourself with the FCA’s guidance on Treating Customers Fairly will also give you a good grounding.

To read more on how you can meet the regulator’s expectations on TCF, you can download a copy of our TCF FAQs. They include information and tips on:

  • What the TCF rules comprise
  • Expectations of firms
  • Evidencing TCF (management information)
  • Getting the culture right
  • Rules for providers and distributors

The FAQs are free and you can read them here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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