Final change to Key Information Documents
Following the consultation paper CP21/23 covered here: Proposed change to Key Information Documents – SDA Actuaries (sda-llp.co.uk) the Financial Conduct Authority (FCA) has issued policy statement (PS) PS22/2: PRIIPs – Final scope rules and amendments to Regulatory Technical Standards | FCA
PS22/2 outlines the FCA agreed changes to the PRIIP regulations, in particular adjusting the regulatory technical standards (RTS) to:
- replace the presentation of the performance scenarios within the key information documents (KIDs) with narrative information; and
- address the potential for the summary risk indicator (SRI) to be underestimated.
These changes came into effect on 25 March 2022 and must be applied by 31 December 2022.
The PS also clarifies the scope of the regulations in relation to corporate bonds, clarifies what it means to make the PRIIP available to retail investors and addresses the concerns on the slippage methodology when calculating transaction costs.
These are targeted amendments as a first step in HM Treasury’s commitment to conduct a review of the disclosure regime for UK retail investors. A more holistic review of the PRIIPs regime is expected in the future as part of meeting this commitment.
The previous regulations required the KIDs to project the PRIIP value under four different performance scenarios. Some firms and the FCA had concerns that the performance scenario methodology produced misleading and unrealistic information.
Due to these concerns, the PS removes the need to display performance scenarios. Instead, the KID will include narrative descriptions to disclose the main factors that could affect future performance alongside the most relevant index/benchmark, including how the PRIIP is likely to compare to this in terms of performance and volatility. This information should enable the investor to form a reasonable understanding of how the PRIIP is likely to perform across a range of market conditions.
Summary Risk Indicator
There was also a concern that the SRI under the old regulations may be underestimated. The RTS have been adjusted to allow a firm to upgrade the SRI if it considers the risk rating to be too low. In a change to CP21/23, manual upgrades do not have to be notified to the FCA.