Disclosure Requirements

The FCA’s commitment to create a sustainable regulatory framework – and recognition that overloading consumers with information that may be complex and poorly presented can lead to people making poor decisions – is behind the publication of CP15/32 “Smarter Consumer Communications: Removing ineffective disclosure requirements in our Handbook”.

Its title very much sums up the proposals in this relatively short (38 pages cover to cover) consultation paper which will have the benefit of reducing “the regulatory burden on certain firms without impacting consumer protection”.

COLL 4.5 currently requires an authorised fund manager (AFM) e.g. the ACD of a UCITS to prepare a twice-yearly ‘short report’ and which must be submitted to all unit holders.  The AFM also has an obligation to produce a ‘long report’ although, in contrast with the short report, it only has to be made available to unit holders on request.  The original intention behind the introduction of the short report (way back in 2004) was because the then FSA believed that most retail investors found the annual manager’s report difficult to understand. Based upon feedback, the FCA is of the opinion that the short report does not serve its purpose and it is proposed to remove reference to it in COLL (although the revised wording in COLL 4.5.2 still only requires an AFM to ‘make available’ the long report).

A year after the introduction of the short report the FCA introduced the ‘Consumer Friendly Principles and Practices of Financial Management’ (CFPPFM) to provide both potential and existing with-profits policy holders with “clear and understandable information about with-profits policies”.  Feedback suggested that few consumers read the document and, ironically, found it difficult to understand. It is proposed that the need to prepare and issue a CFPPFM is also removed from the Handbook (COBS 20). CP 15/32 reminds us that on 31 December 2016 the requirement to provide Key Information Documents (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs) comes into force which will help to improve transparency – see Regulatory Roundup 61 for further information.

The final disclosures that will go the same way as those above are the Initial Disclosure Document (IDD), the Combined Initial Disclosure Document (CIDD) and the Services and Costs Disclosure Document (SCDD).  Strictly speaking it is no longer a requirement to give out the IDD and CIDD but the templates have remained as guidance with reference to them. The SCDD, so the FCA believes, leads to duplicated information to consumers and firms, adopting a tick-box approach in the delivery of disclosures.  Suitable amendments will be made to the Handbook e.g. the reference to the SCDD in COBS 6.3 in relation to packaged products etc.

Full details of all proposed Handbook amendments can be found in Appendix 1 of CP15/32.

Comments are invited by 18 December 2015.

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