Bye bye PRIIPs – a new direction for retail disclosure

Written by Liam Edwards

The Treasury has published a consultation on the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (1286/2014) and the UK Retail Disclosure regime. The full text of the consultation is available here. The consultation outlines the Treasury’s plans to substitute the existing UK PRIIPs Regulation for a new retail investment disclosure framework. This forms part of Jeremy Hunt’s Edinburgh Reforms, a suite of financial services reforms announced on 9 December 2022.

Key issues with the current regime

The consultation identifies a number of aspects of the current regime as “not fit for purpose”, including the following points:

• the range of standardised and non-standardised disclosure documents are confusing for retail customers;
• the regulatory burden of the PRIIPs Regulation can dissuade firms from making retail products available in the UK;
• the presentation of significantly different products (e.g. from ETFs to complex derivatives) in similar standardised documents can be misleading to retail investors, implying that such investments carry comparable risks;
• retail disclosure rules are spread across a broad legislative landscape, which can be confusing and onerous for firms; and
• UCITS rules and PRIIPs rules can currently apply to very similar retail products.

The Treasury’s proposals

The consultation puts forth proposals for the UK retail disclosure regulation to take a new direction in an effort to address the issues identified above. In devising its plan for a new disclosure regime, the Treasury notes that it has been guided by the following principles:

• retail investors should have access to “clear and useful information to make evidence-based” investment decisions;
• the disclosure received by retail investors ought to be “proportionate to the risk that they are taking … and the complexity of the decision that they are making”; and
• retail investors should have additional choices open to them, to be achieved by reducing the regulatory burden on firms.

The Treasury outlines that disclosure requirements ought to be flexible and less prescriptive, although acknowledges that “where an investment is high risk or complex, more prescriptive disclosure requirements may be necessary”.

The consultation also outlines that the comparability of retail disclosure documents will not be an objective for the new UK retail disclosure regime. Whilst it may be necessary for certain information to be standardised, the Treasury concludes that “retail disclosure requirements should not seek to ensure that firms provide all of the information necessary for an investor to compare different products and come to a decision”, as the information required to meet this standard can vary between investors.

The Treasury also notes an intention for regulatory disclosure requirements to be maintained within the FCA Handbook, rather than legislation, to allow for a “clear and comprehensive framework”. This means that the FCA will have general control over the shape and direction of the UK disclosure regime.

Next steps

The Treasury paper states that the revocation of the PRIIPs Regulation will be commenced as a matter of priority following Royal Assent of the FSM Bill, in favour of FCA rules.  Feedback to the consultation is invited by 3rd March 2023.