The status of bonds under new European regulation is causing confusion among providers and advisers.
Investors may have been locked out of a number of investments such as bonds as providers remain divided on whether they fall under Priips rules, trade body Pimfa argues.
Pimfa says “some damaging effects” are already visible in the market a month after the new rules came into force, as some discretionary fund managers and platforms still fail to determine whether some investments, bonds in particular, fall under the complex or non-complex definitions in the regulation.
Priips applies to a wide range of firms, including banks, insurers, and investment managers, and aims to extend Mifid II standards on consumer protection to insurance-based investment products.
Rules apply to firms that give advice on, manufacture, or sell Priips to consumers in the UK retail market and ask them to provide a Key Information Document (KID) to address risks, performance and other information about the products.
Pimfa deputy chief executive John Barrass says there is still “a lot of ambiguity” around Priips documentation for bonds, meaning that providers lack clarity on whether they should have a KID or not.
He says: “Firms still don’t know what is a complex product under Priips, what it is not, what is allowed to be sold if you are a DFM or a platform for a client without having a KID.
“You have different answers on what is and is not included in the definition if you go from one provider to another. Our firms are finding that their supply lines therefore are being affected because they gave different answers and are not sure which one is the right one.
“You have reduction in investing in those products because the Priips KID is technically required… You are also closing down the supply line from third-country investments.”
In May 2017, the FCA updated firms on which products will be considered under the Priips definition.
Products and services that will not fall under the Priips definition will include investment trust savings schemes, Isas, pension products including annuities, occupational pension schemes and individual pension products, assets that are held directly by the retail investor, such as corporate shares or sovereign bonds, as well as traded life policies.
Meanwhile, non-Ucits retail schemes such as authorised unit trusts, open-ended investment companies and authorised contractual schemes, private equity schemes, derivatives, structured products and venture capital trusts will fall under Priips definition.
The FCA also said firms will not be required to provide a simplified prospectus for professional clients, after some in the market believed their only options were to produce a non-Ucits retail scheme KID or a KID for retail clients.
Momentum Investment Management head of UK retail sales Andy Davies says the firm originally had NURS products but changed them into Ucits to avoid any issues for advisers and to make their job easier.
He says: “Our funds were originally under NURS and we thought these would put advisers off as it was more onerous for them. With Ucits, because it is non-complex, advisers don’t have to make the extra work.”
Seven Investment Management head of compliance David Ogden says the issues outlined by Pimfa may arise mostly for execution-only platforms but argues advisers and platforms should “always” rely on the product assessments done by manufacturers.
He says: “Products need to be assessed by the manufacturers because that will not lead to different interpretations.”
Hargreaves Lansdown head of communication Danny Cox says providers, such as Hargreaves itself, usually interpret their different products and whether these are qualified as complex or not.
He says: “We have classified some corporate bonds as Priips. Where they don’t have KIDs we have withdrawn them from our website.”