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Regulation heavyweight tells FCA ‘heads should roll’ over Priips

Regulation heavyweight tells FCA ‘heads should roll’ over Priips

A leading figure in fund regulation has written to the Financial Conduct Authority (FCA) slamming packaged retail and insurance-based investment products (Priips) legislation.

Philip Warland (pictured), who left his post as director of policy at Fidelity International at the start of last year, described the new rules, introduced at the start of this year, as ‘the worst piece of financial regulation ever in Europe’.

In his strongly worded letter to FCA boss Andrew Bailey, Warland accused regulators of an ‘absolute dereliction of the duty of care’.

He wrote: ‘Heads should roll in the FCA, in [the European Securities and Markets Authority] and in the European Commission. This is by far the worst piece of financial regulation ever in Europe and the FCA is complicit.’

On Wednesday The regulator responded to a barrage of criticism on changes to disclosure rules accused of increasing the risk of fund mis-selling, saying groups will have discretion on how they are presented.

The watchdog's intervention came after a number of senior investment specialists spoke out about changes to key information disclosure (KID) documents instituted under Priips. 

Intended to make it easier for potential investors to compare like-with-like, they warned that a move to risk rating based on recent market performance could badly mislead buyers on future prospects.

The board of the Henderson Smaller Companies trust went as far as telling investors not to rely on its own documentation last week, while James Anderson (pictured) manager of the £6.5 billion Scottish Mortgage trust, this week said that he was ‘extremely disturbed’ by the changes.

The FCA sought to clarify its rule book, saying that if fund groups believe specific circumstances are not reflected by the performance measure ‘we are comfortable with them providing explanatory materials to put the calculation in context’.

‘We understand 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 may a number of reasons for this: the strong past performance of certain markets, the way the calculations in the RTSs must be carried out, or calculation errors.

‘Where firms selling or advising on Priips have concerns that the performance scenarios in a particular KID may mislead their clients, they should consider how to address this, for example by providing additional explanation as part of their communications with clients.’

Scottish Mortgage warned that based entirely on recent equity outperformance investors in its fund were now told they might expect 20% a year over the next five years in a ‘moderate scenario’, or 30% in a ‘favourable’ one.  

‘The KID document does not explain what “moderate”, “favourable” and “unfavourable” mean, but a reasonable person might infer that “moderate” would not be as good for investors as the past few years have been and that “unfavourable” might describe a market downturn — perhaps similar to that experienced in 2000-2 or 2008-9,’ Scottish Mortgage board member John Kay wrote in the FT.

Chief executive of the Association of Investment Companies Ian Sayers welcomed the rapid turnaround by the regulator. 'We are encouraged by the pragmatic approach to the industry’s concerns,' he said. 

'Directors of investment companies have expressed their misgivings about the performance scenarios that KIDs require which, in some cases, are too optimistic.

'It is one of the pleasing features of the investment company sector that independent boards of directors are more concerned with providing an accurate picture to investors rather than simply complying with rules.'


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