Financial Conduct Authority boss Andrew Bailey has vowed to take action to address unintended consequences of Mifid II and packaged retail and insurance-based investment products (Priips) regulations.
Having previously voiced concerns about Priips, Bailey (pictured) said the regulator will take action next month, after asset managers flagged deep unease about the disclosure requirements of both sets of rules.
Speaking at the FCA’s Asset Management Conference, Bailey said: ‘Our supervisors have begun work to analyse how costs and charges disclosure reforms are working in practice and we will publish a report for input next month to explore the scale of the potential problems.’
Under the rules, fund managers must provide details on how they expect funds to perform in various market conditions through a standardised key information document (KID).
This is designed to help investors make better informed decisions by being able to compare key features, risks and rewards of products.
The rule change had sparked an angry response from many fund managers whoever, who said the requirement distorted investor expectations of fund risk exposure and potential future returns.
Baillie Gifford’s James Anderson has been one of the most vocal critics of the rules, describing them in January as misleading.
‘We are extremely disturbed by the requirements of the key information document,’ he said, shortly after the rule change went into effect.
‘We do not believe that reliance on past performance data is ever a sufficient guide to the many possible future outcomes in stocks and markets.’
In April Bailey told an audience at the London Business School that the FCA was prepared to take on board the criticism and promised to act on it: ‘I want to be clear that I am concerned about Priips, and I know I am not alone.
‘It carries a risk that it is leading to literally accurate disclosure which is not providing useful context, and there is evidence that funds, for instance from the US, are withdrawing from Europe to avoid the burden. I have also heard concerns about performance projections. We all have to take this seriously.’
Reacting to the news, Alex Dorfmann, director of product management at financial data specialist SIX, described the FCA’s action as a ‘positive step’.
Dorfmann said: ‘Bailey’s comments are a key example of why it is crucial to be able to respond to any recommended changes and clarifications that come from the regulators.
‘For asset managers, this means adopting flexible compliance systems that can be easily adjusted in the face of new or unexpected developments.
‘Embracing a more strategic approach to investor protection and aligning compliance efforts will allow asset managers to react, not only to the FCA’s concerns, but to any future recommendations made from other local regulators across Europe.’