There is a great deal of rule-making going on in Brussels right now, some of which will have a significant impact on the retail distribution market in the UK.
The European Union packaged retail investment and insurance-based investment products regulation, requiring disclosure of key information to investors for all Priips, combined with a new Markets in Financial Instruments Directive – Mifid II – will come into force from January 2017.
The Priips regulation will require a new key information document to be produced. This will extend the current Ucits KID concept to life products with an investment element and to structured deposits. The new document will be three pages long and while it will be for product providers to produce them, under the Mifid II rules, advisers and other distributors will be required to add any distribution costs and charges to the figures in the KID so that investors can see the cumulative effect of all costs and charges.
Information to be included in KID:
- The type of Priip (ie. fund, life insurance contract, etc.)
- The product’s objectives and how these will be achieved
- A description of the intended investor for the product
- The term of the product, if there is one
- A description of the risk-reward profile, including a summary risk indicator
- The possible maximum loss of invested capital
- Performance scenarios and the assumptions underlying them
- Details of any relevant investor compensation or guarantee scheme
- Details of product costs, including both direct and indirect costs, which must be aggregated and shown in monetary and percentage terms
- Details of any cancellation or cooling off period
- The recommended minimum holding period
- Details of the ability to make withdrawals before maturity; and details of how to complain
The Priips regulation was finalised in December 2014 but we are still waiting for a level of certainty and detail before firms can begin to change their systems and processes. Details of what the risk-reward summary indicator will look like, or how risk measures are to be calculated, are unknown.
The same is true of the required performance scenarios and which indirect transaction costs must be included in the costs and charges information. These unknowns should be clarified via the so-called regulatory technical standards, which are not yet available – even in draft. European lawmakers plan to issue a second discussion paper before the draft is published for consultation in the autumn.
Meanwhile, the relevant parts of Mifid II are also at an early stage of development, even though the UK Government and the FCA, alongside other member states, must transpose all of Mifid II into national law by July 2016. January 2017 may seem some way off but by the time we know the detail of the new rules, it will be the usual rush to get everything in place to comply from day one.
Mike Gould is senior adviser, retail distribution, at the Investment Management Association