A new UK retail disclosure regime after PRIIPs – HMT consults

On 9 December 2022, HM Treasury (HMT) published a consultation paper, “PRIIPs and UK Retail Disclosure” (the Consultation).

The Consultation closes on 3 March 2023.

Why is the Consultation out?

Publication followed a written statement from the Chancellor of the Exchequer, Jeremy Hunt, which gave details of a series of reforms (the Edinburgh Reforms) to the UK financial services sector, including plans for a proposed alternative framework for retail disclosure in the UK.

The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation is set to be repealed by the Financial Services and Markets Bill (with its revocation being commenced “as a matter of priority” following Royal Assent). The new disclosure framework to replace it in the UK will, according to HMT, “work more effectively with the UK’s dynamic capital markets and foster more informed retail investor participation”.

What does it contain?

• HMT is proposing a move away from a prescriptive, standardised document, towards greater flexibility and tailoring to suit the needs of retail clients – the KID can be expected to disappear (to be replaced by a disclosures requirement of some kind). However, as things stand, it is important to remember that this applies in the UK only; firms will still need to provide KIDs for EU retail investors.

• HMT criticises the highly prescriptive nature of the KID, which it feels is not conducive to improving investor understanding.

• Under the new regime, the FCA would determine the format and presentation requirements for disclosure (so, for example, higher risk or more complex investments might be subject to more prescriptive requirements) with the aim of introducing flexible requirements that can be incorporated into firms’ existing information documents.

• The Consultation flags up a move away from comparability of products – HMT’s view is that it is not feasible to meaningfully compare a wide range of varied products by use of a single format.

• Instead, the retail disclosure regime should be targeted at the retail investor understanding the nature of the product so an informed choice around investment can be made.

• HMT’s view is that it would not be appropriate for different disclosure regimes to govern UCITS and PRIIPs in the long-term. Accordingly, it proposes that the FCA would be empowered to integrate UCITS and PRIIPs disclosure into a coherent UK retail disclosure framework before the UCITS exemption ends (currently, at the end of 2026).

• HMT is working closely with the FCA to ensure that there is no gap between the PRIIPs regime’s revocation and the introduction of its replacement. The FCA will consider changes to its rulebook on the basis of feedback to the Consultation.

• The Consultation also seeks feedback on the wider retail investment and disclosure issues including:

  • facilitating improved access to a wider range of investment products, such as US ETFs and
  • digitised disclosure formats, which offer greater innovation with respect to format and presentation.