The FCA issued Consultation Paper CP16/18 so that firms could prepare for new disclosure rules. These were intended to take effect on 31 December 2016. As a result of last minute debates on the technical standards that support the new rules, the start date has been put back by one year and are now expected to come into force in January 2018.

The disclosure requirements will apply to all PRIIPs that are made available to retail investors. We’ve had Packaged Products and we’ve had Retail Investment Product and now we have the latest iteration – Packaged Retail and Insurance-based Investment Product or PRIIPs. It just rolls off the tongue!

Why the changes?

The new rules have been developed with the aim of encouraging efficient EU markets by helping investors to better understand and compare the key features, risks, rewards and costs of different retail products (if they are PRIIPs, not all retail products will be for purposes of disclosure). It does this by requiring that investors are provided with information in a short and consumer-friendly document – the KID that will have a prescribed and consistent format and content across all EU member states. Although we are leaving the EU, the PRIIPS regulation is an EU regulation and creates directly applicable legal requirements with no new regulation required in member states. So the FCA has to ensure it applies to relevant entities in the UK from the due date.

Who is affected?

The rules mainly affect ‘manufacturers’ of PRIIPS – i.e. providers. But they can also apply to ‘distributors’ of those products if the distributor makes any alterations to the disclosure documents issued by the manufacturer.

So far as advisers are concerned, things won’t change much. Providers will issue the relevant documents and firms will forward these to the clients. There are rules about the timing of issue but these are also pretty much as at present, i.e. in good time, prior to any decision on proceeding with the investment etc.

As some existing docs will still be required in some situations, it remains to be seen whether the total quantity of paper clients receive will be more or less than at present.

What is a PRIIP?

A PRIIP is an investment where, regardless of the legal form of the investment …

… the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor, or which is an insurance product that offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations.

That sounds straightforward – anything that is affected by market fluctuations.

Inevitably, it is not quite as simple as that, this is an EU regulation after all. There are exemptions, some as you would expect, such as certain securities issued by Government (e.g. Gilts), local authorities, central banks or non-profit making bodies and similar.

But there are also some apparently surprising exemptions. The two most worth mentioning are …

UCITS
Although these undoubtedly fall within the definition of PRIIPs, they are exempted initially because the disclosure requirements for these were set more recently than for older instruments and actually match many (but not all) of the new PRIIP disclosure requirements anyway. However, UCITS will have to follow the full PRIIP requirements from 31 December 2019. And other products, currently exempted, might be brought under the new disclosure umbrella at any time.

Pension products
The following are also exempted from the new requirements …

• pensions that are recognised under national law as having the primary purpose of providing the investor with an income in retirement (including pension annuities purchased using monies from a pension product recognised under UK law);
• occupational pension schemes;
• individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provide.

However, an assessment as to whether pension products should be brought into scope will be made by 31 December 2018.

What does the new disclosure look like?

The KID or Key Information Document will be a standalone document in a standardised format. It will be no longer than three sides of A4 paper and will contain the following information …

• What is this product? 
• What are the risks and what could I get in return?
• What are the costs?
• How long should I hold it and can I take money out early?
• How can I complain?
• Other relevant information.