The UK is proposing to overhaul the disclosures that must be provided to UK retail investors in financial products by repealing the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and replacing it with a more flexible disclosure regime administered by the UK's Financial Conduct Authority (FCA).

Background

The UK's financial services regulatory regime currently prescribes that retail investors in financial products, such as funds, must be provided with certain information before those investors make their investment. The regime is predominantly inherited from EU legislation, with which the UK needed to comply before Brexit, and which the UK 'onshored' at the time of Brexit.

This regime consists of a patchwork of requirements derived from a multitude of legislative packages, including the second Markets in Financial Instruments Directive (MiFID II) package, the PRIIPs Regulation, the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Distance Marketing Directive.

Firms have long been concerned that this results in a complex, overlapping set of requirements that may not achieve the aim of aiding retail investors. There have been particular concerns with the PRIIPs regime, which requires firms to produce a short information document for retail investors known as a Key Information Document (KID). The form and content of the KID are rigidly prescribed and led to a number of concerns, including that the presentation of performance scenarios and summary risk indicators as prescribed in the PRIIPs requirements could, for some products, be actively misleading to investors.

The UK's proposal

The UK is proposing to repeal the PRIIPs Regulation, replacing it with a tailored, UK retail disclosure framework. On 9 December 2022, HM Treasury published a consultation paper entitled 'PRIIPs and UK Retail Disclosure' setting out this proposal in more detail. The paper states that the government believes that retail disclosure requirements should be contained in FCA rules, as opposed to legislation, to provide a clearer and more comprehensive framework that can be more easily updated as markets evolve. The paper also confirms the government's intention for UCITS disclosure requirements (which, in the UK, fall into an exemption from the PRIIPs regime and are currently prescribed by the UCITS regime) to be integrated into the same retail disclosure framework.  

On 13 December 2022, the FCA published a discussion paper entitled 'Future Disclosure Framework', seeking views on the disclosure framework that will replace the PRIIPs Regulation and UCITS disclosure requirements. The paper seeks views on the format, presentation and content (in particular regarding costs and charges, risk and performance) of the disclosures that should be provided to retail investors.

Interestingly, the discussion paper states that the FCA wants to 're-examine the relationship between product manufacturer and distributor in the creation and delivery of disclosure' and seeks views on who should have responsibility for producing retail disclosures.

Perhaps disappointingly for firms, the scope of the UK's proposal thus far relates only to PRIIPs and UCITS disclosures and does not deal with the multifarious disclosure requirements contained in other regimes, such as those inherited from MiFID II.

Next steps for firms

The two documents present an opportunity for firms to influence the format, delivery and content of future disclosures to retail investors. Firms involved in the manufacture and distribution of PRIIPs and UCITS that have UK retail investors should review both documents and consider whether to respond directly or via an appropriate channel. The HM Treasury consultation closes on 3 March 2023 and the FCA discussion paper closes on 7 March 2023. 

Authors: Charlotte Chopping, Simon Crown, Paul Ellison and Monica Sah