PRIIPs and UK Retail Disclosure

Following a consultation as regards the replacement of the „Retained Packaged Retail Investment and Insurance-Based Products (UK PRIIPs Regulation)“ with an entirely new UK PRIIPs regime late last year (please see EventID 18603 in this context), the HM Treasury has now published a corresponding response paper. In this paper, the Treasury briefly discusses the feedback it has received to its consultation and describes the way forward on this matter.
#### Background
To recall, in an effort to mitigate all the shortcomings of the currently Retained Packaged Retail Investment and Insurance-Based Products (UK PRIIPs Regulation) such as the overly prescriptive nature of the disclosures, the lack of flexibility for product-specific adjustments, or the insufficient application of proportionality, the Treasury proposed to establish a comprehensive set of new rules for PRIIPs products, including UCITS, under the remit of the Financial Conduct Authority (FCA). The old PRIIPs regulation along with scattered rules and regulations pertaining to PRIIPs products would be eliminated and the FCA would be mandated to develop rules that are
– proportionate;
– flexible;
– not overly prescriptive; and
– suit the UK market.
#### Responses
The responses that the Treasury received were overwhelmingly positive. In fact, most respondents agreed with the problems surrounding the current PRIIPs Regulation that were highlighted by the Treasury in the consultation. One key issue addressed by commenters was the information currently being presented in the PRIIPs Key Information Document (KID), especially the information relating to cost and risk disclosures. In their view, these disclosures should be improved as they are potentially misleading and do not truly benefit retail investors.
The proposed principles for the new retail disclosure regime were also well received by respondents (useful, clear, proportionate). The majority of stakeholders supported the idea of providing clear and useful information to retail investors. However, some respondents sought greater clarity on defining a „proportionate“ burden based on the type of investment product.
In the consultation paper, the Treasury proposed the primary objective of disclosures made under a new regime to be the empowerment of investors to make well-informed decisions about specific products, rather than focusing solely on comparability. While most respondents supported this approach, some still emphasized the importance of comparability across similar investment products to aid consumer decision-making. In this context, most respondents advocated for some standardization of key information across all products, especially related to the calculation of costs and risks.
Finally, as far as the proposed integration of UCITS disclosure requirements into the new regime is concerned, again, a large majority of respondents, particularly those familiar with UCITS, expressed strong support for this approach, as it would provide more certainty for businesses, align disclosure requirements for similar products, and consolidate the requirements in one regulation.
#### Way forward
Due to the overwhelmingly positive responses, the Treasury intends to proceed as proposed. That is, it plans to create a new retail disclosure regime, revoking the PRIIPs regulation and all related secondary regulation and entrusting the Financial Conduct Authority (FCA) with setting the rules for the future disclosure regime with the key principles outlined in the response paper and the corresponding FCA discussion paper. The Treasury also plans to expand the powers of the FCA to provide corresponding rules for unauthorized firms and overseas UCITS to ensure a level playing field among market participants. A draft Statutory Instrument for the revocation and the empowerment of the FCA is planned for 2024. Following thereafter, the FCA will consult with the industry on the proposed new disclosure framework.
To conclude, the Treasury notes that there will be a transition period to allow UCITS to adjust their disclosures accordingly. Further information will be presented in due course.