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FCA to simplify disclosure rules for investment funds

Pabio December 19, 2024

The Financial Conduct Authority has announced plans to simplify information provided to investors as part of its plan to replace EU rules.

The regulator is considering replacing parts of the Priips regime and making changes to the rules governing information provided to investors.

The FCA rules will apply to closed and open-ended funds, as well as structured products and insurance-based investment products.

Under current rules, introduced across Europe when the UK was part of the EU, people buying investments receive standardized documents covering prescribed information.

But the FCA said: “In practice these documents were often complex, unclear and could omit important points. This could dissuade people from investing or lead them to make less informed decisions.

In practice, these documents were often complex, unclear and could omit important points. This could dissuade people from investing or lead them to make less informed decisions.

The FCA said it was consulting on a new product information regime to “help consumers understand the products they buy while giving businesses the flexibility to innovate”.

The proposals will simply build on existing rules while allowing for better digital communications.

The FCA said firms would have more choice over how, what and when they communicate.

But the regulator said it would set detailed requirements where truly necessary to ensure consistency and comparability across the market.

For example, regarding costs, the FCA suggests presenting a single, aggregated percentage of ongoing costs.

He said: “Some in the industry have argued that aggregated ongoing costs can be misleading because they do not provide sufficient information to investors.

“We consider that the breakdown of ongoing costs could confuse or overwhelm retail investors.

“This is consistent with research that suggests that people’s tendency to focus on displayed prices may make them susceptible to being misled by ‘partitioned pricing,’ where the price of an item is divided into multiple components.

“Our proposals aim to ensure that information is presented in a way that consumers can interact with.”

The investment funds industry has long lobbied for changes to Priips, which it says creates an uneven playing field – for example by including debt costs that make them appear disproportionately expensive.

The FCA is proposing that gearing should still be disclosed, but that it should be excluded from the ongoing cost disclosure because it represents a risk factor rather than an ongoing cost.

The FCA said: “Debt is an important consideration for consumers as it increases volatility due to greater exposure to market movements. This impacts the risk-reward profile of a product by magnifying potential gains or losses.

Simon Walls, FCA interim executive director of markets, said: “The way people invest has changed. We want to ensure that businesses can communicate with their customers in a way that provides them with the information they need, when they need it.

“High-quality product information will give consumers the confidence to invest; Increased participation in this market will not only benefit consumers, but also provide capital to stimulate the economy and drive growth.

Commenting on the proposals, Christian Pittard, Head of Investment Funds and Managing Director of Corporate Finance at Abrdn, said: “There is a lot riding on this consultation and there is no time to lose, with 22 funds closed having left the sector in 2024.

“The abstention measures should have provided some respite, but instead they created a void of consensus – a wasted opportunity, a huge own goal.

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FCA to simplify disclosure rules for investment funds

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