The 2019 annual report of the Financial Conduct Authority (FCA) offers the promise of positive improvements to Key Information Documents (KIDs), and is working hard to make sure Brexit doesn’t derail things.

In its report, the FCA discusses the EU Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, which it reiterates is designed to “help consumer understanding and outcomes by standardising the disclosures firms give to retail investors, giving them the ability to compare competing products”.

The FCA has confirmed it will “continue to work closely with the European Supervisory Authorities and the European Commission” as they undertake a full review of the Regulatory Technical Standards under the Regulation. It adds: “The review will primarily focus on improving how risk and reward are displayed in the Key Information Document.”

This should be positive news for investors, potentially clearing up a significant uncertainty that has to some extent undermined the intention of the PRIIPs Regulation.

KIDs have always been the more controversial aspect of the PRIIPs rules, with concerns that the regulation is not drafted in such a way as to create consistent results that do not mislead the consumer. A sticking plaster solution was agreed by the Joint Committee of European Supervisory Authorities (ESAs) earlier this year, when the following wording was to be included with KIDs:

“Market developments in the future cannot be accurately predicted. The scenarios shown are only an indication of some of the possible outcomes based on recent returns. Actual returns could be lower.”

With the review taking place over the course of 2019, it looks like there could be more substantive changes in the offing in 2020 that will provide much greater clarity for investors.

However, it seems that the KIDs are in danger of being caught up in the middle of the EU divorce. The FCA adds a caveat that its work with ESAs and the Commission is “subject to the nature of the UK’s relationship with the EU”, perhaps hinting that a no-deal exit would bring an end to that cooperation. 

In fact, that may not be the case. The good news is that the FCA’s preparations for EU withdrawal have “been a resource-intensive area of this year’s work, involving planning for all scenarios”, says chief executive Andrew Bailey in the annual report. He adds that this includes establishing “new, or updated, cooperation agreements to help ensure continued cooperation with our EU and global counterparts even in the event of a ‘no deal’ scenario”.

The market will no doubt be pleased to hear of such efforts to provide continuity in an area that continues to generate significant uncertainty.

Meanwhile, it was perhaps inevitable that the report would touch on the situation over at the  Woodford Equity Income fund, where trading remains suspended. In its section on funds investing in assets, the FCA said it continues to consider feedback from its proposals published in October 2018 to tackle “ the harms we found from illiquid assets and open-ended funds marketed to ordinary retail clients”.

The report added that the authority is now also taking into account the “lessons learned” from the Woodford fund as it goes about finalising the new rules. 

While some may sigh at the prospect of yet more regulation, it is clearly a welcome move by the FCA if it can come up with some rule changes that reduce the risk of other funds facing the same problems as Woodford. The once-fêted stock picker’s dramatic fall from grace has hit confidence in the market, so efforts to tackle the issues here should help to calm any nervousness.

Clearly, though, as the Conservative Party leadership jamboree continues, attention is now keenly focused on 31 October, the ‘immovable’ Brexit day. Like many others, the FCA is planning hard, but won’t know how its regulatory efforts will develop until a deal is signed – or not. Given its work to develop cooperation agreements with the European institutions, we may yet find that the KIDs are alright.

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