Financial Conduct Authority Proposes Further Divergence on the UK PRIIPs Regulation

On 20 July 2021, the Financial Conduct Authority (“FCA”) published a consultation paper (CP 21/23) on the post-Brexit scope rules under the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation and amendments to the supplementary UK Regulatory Technical Standards (“RTS”).

This is an example of the FCA exercising their right to diverge from the EU through recent legislative changes with powers to amends the domestic PRIIPs regime granted through the Financial Services Act 2021 as well as post-Brexit powers to amend technical standards afforded to the FCA through the Financial Services and Markets Act 2000 (“FSMA”).

The consultation paper seeks to address concerns with the PRIIPs disclosure and “aim to mitigate harm to retail investors” through a number of changes including: 

• clarification of the PRIIPs Regulation in relation to corporate bonds, namely providing clarity that certain features do not make these instruments a PRIIP
•  introduction of guidance which will seek to explicate what it means to make a PRIIP available to retail investors
• amend the UK PRIIPs RTS to:
• • replace the requirement for performance scenarios and accompanying methodologies (as per the EEA PRIIPs Regulation) with a more flexible requirement that the KID contains narrative information on performance
  • address the potential for some PRIIPs to be assigned an inappropriately low summary risk indicator in the KID due to the heavy reliance on volatility measures under the current EEA PRIIPs Regulation;
  • address concerns pertaining certain applications of the slippage methodology when calculating transaction costs

As it currently stands, the changes highlighted in the consultation paper (subject to the outcome of the consultation itself) are to come into effect from January 1st 2022 with amendments to the RTS to be implemented by the end of 2021.

The FCA has stated that not only will the amended regime apply to UK managers and businesses but that the intention is that it will also apply to “EU and EEA manufacturers and distributors which currently manufacture and market PRIIPs into the UK and wish to continue operating in the UK”.

Practically speaking, this divergence by the FCA will mean a differentiation in the UK and EEA regimes in less than 6 months and is in advance of the expected implementation date of the European Commission’s update to the PRIIPS RTS (expected to come into force from July 1st 2022). It should also be noted that these amendments to the UK PRIIPs regime do not include UCITS funds which have been excluded from PRIIPs KID disclosure until December 31 2026.

For additional guidance on this matter, please contact our team of legal and regulatory experts.