The UK’s retail financial services industry is one of the great driving forces of the UK economy. This sector in particular plays a vital role in providing consumers with the support they need when engaging with financial services and providing routes to market for millions of people every year.
Key to achieving both of these objectives is ensuring that we have a fit-for-purpose disclosure regime that encourages transparent communication between firms and clients and – to the extent that it is possible – engaging them in the decisions they make.
The introduction of the packaged retail investment and insurance products (Priips) regime has made this task harder.
Priips has meant consumers are often presented with information rendered meaningless by comparisons to other product sets.
This information, in combination with the onerous disclosure requirements set out in the Financial Conduct Authority's Handbook, means that consumers are often drowned in the paperwork that firms are obliged to provide but ultimately gain no value from them.
The government’s recent announcement that it intends to replace Priips with a UK-specific product disclosure regime within the FCA Handbook is therefore very welcome.
The amount of data a key information document must contain due to the Priips regime can be overly complex, have too much jargon and often makes it difficult for consumers to compare different investment products.
Of course, Priips cannot simply be repealed – it must be replaced. To this end, Pimfa broadly supports both the ambition of HM Treasury and the FCA in reconsidering our wider disclosure framework.
But at present, the proposals set out are extremely high level, and there is still significant work to be done to deliver a UK-centric disclosure framework that is fit for purpose in the future.
Starting at first principles, any review needs to answer the following questions: what is the purpose of disclosure, and what should it achieve for consumers?
Consumers frequently identify the huge amounts of mandatory information they receive as one of the most negative features of their investment experience.
In our view, if the purpose of disclosure is consumer engagement and understanding, then this is unlikely to improve unless what we disclose can be significantly reduced, simplified and made more impactful.
In keeping with the high-level nature of the proposals to date, Pimfa has identified six specific focus areas for the government and the FCA when conducting their respective reviews. We are calling on them to:
- Reduce the weight placed on disclosure as a regulatory tool, recognising both low levels of consumer engagement and financial literacy 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 focusing 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 focus on: ‘the six 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, the Insurance Distribution Directive and Distance Marketing Directive.
- 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.
We have an opportunity to radically rethink disclosure from first principles, and in doing so we can create a simpler, more impactful disclosure regime for consumers.
We can truly consider how the information provided to advised clients can work with other regulatory protections, such as consumer duty, to deliver better outcomes and a more robust, UK-centric regulatory framework that is fit for purpose moving forward.
