Europe: Divergence Between UK and EU Priips Disclosures Set to Add Complexity for Managers
By: Andrew Massey
On 25 March 2022, the FCA confirmed new requirements for the key information document (KID) required for package retail and insurance-based investment products (PRIIPs) in the UK: policy statement 22/2. Investment funds are generally categorised as PRIIPs, although UK UCITS and UK non-UCITS retail schemes are exempted from the PRIIPs KID requirement until 31 December 2026.
The changes, effective immediately but with a transitional period until the end of 2022, have the effect that disclosures for distribution of relevant products to retail investors will need to be different in the UK and EU.
The changes to the UK version of the PRIIPs KID that will result in that divergence include:
- replacing performance scenarios with a requirement for narrative information;
- if a PRIIP’s summary risk and reward indicator (SRRI) is too low, requiring the PRIIPs manufacturer to increase the SRRI to ensure it is “appropriate and unlikely to mislead investors”;
- requiring venture capital trusts to have an SRRI no lower than 6 or 7; and
- changing the methodology for transaction cost calculations to seek to address some of the anomalies that can arise.
In addition, in a new Product Disclosure sourcebook (DISC), the FCA provides guidance on conditions to be satisfied where a PRIIPs is not intended to be ‘made available’ to retail investors in the UK, and clarifies the scope of application to debt securities.
Whilst the changes seek to address industry concerns regarding some aspects of the PRIIPs KID requirements, the divergence between the UK and EU requirements seem set to add to the administrative burdens of fund managers that make products available to retail investors in both the UK and EU. The FCA indicates that discussions with HM Treasury regarding retail disclosure requirements are ongoing, and therefore further changes can be expected.