On January 24, the UK Financial Conduct Authority (FCA) published a statement relating to performance scenarios in key information documents (KIDs) provided in accordance with the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation.
The PRIIPs Regulation has applied since January 1 and, since then, PRIIPs manufacturers have had to prepare and publish KIDs, which are stand-alone and standardized documents, for each of their PRIIPs. KIDs detail risks, performance scenarios, costs and other pre-contractual information and must be accurate, fair, clear and not misleading. The PRIIPs regulatory technical standards (RTSs) set out how information provided in the KID should be calculated.
The FCA points out in the statement that its rules also require firms to ensure that their communications with clients more generally are fair, clear and not misleading. They are also required to act honestly, fairly and professionally, in accordance with the best interests of their clients.
The FCA goes on to state that it understands that some firms are concerned that, for a minority of PRIIPs, the performance scenario information required in the KID may appear too optimistic and so has the potential to mislead consumers. There could be a number of reasons for this, including the strong past performance of certain markets, the way the calculations in the RTSs must be carried out or calculation errors.
The FCA states that where a PRIIP manufacturer is concerned that performance scenarios in a KID are too optimistic, such that they may mislead investors, the FCA is comfortable with the PRIIP manufacturer providing additional explanatory materials to put the calculation in context and to set out their concerns for investors to consider.
For those firms that do not manufacture PRIIPs but provide KIDs to their clients, the FCA states that they should consider how to address the issue of KIDS that they believe may mislead investors. For example, such firms could also provide additional explanation as part of their communications with their clients.
The statement is available here.