Priips and the IFA
Written on 07/08/2020
PRIIPS and the IFA

We have recently had a few enquiries around PRIIPSs, including the various articles that have been noticed in the Financial Press / Blogs.  As a quick reminder, the FCA issued guidance on this in December 2015, and updated in December 2018.   The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation has applied since 1 January 2018. 

IFA Firms need to comply with this regulation, in addition to any relevant disclosure requirements in the FCA Handbook.

So, as a reminder:

PRIIPs: who does it affect? 

The Regulation applies to persons who:
  • manufacture PRIIPs
  • advise on or sell PRIIPs

A PRIIP manufacturer (or any other person who changes an existing PRIIP, such as a distributor) is required to:
  1. prepare a KID for each PRIIP that they produce and
  2. publish each KID on their website

The IFA who advises a retail investor on a PRIIP must provide the retail investor with a KID in good time before any transaction is concluded.  Where the retail investor initiates the transaction by means of distance communications, the KID may be provided after the conclusion of the transaction, as long as it is not possible to provide the KID in advance and the retail investor consents. 

The FCA makes clear that these regulations don’t just apply to the above parties, but also to:
  • retail investment product providers
  • life companies
  • discretionary investment management firms
  • firms providing services in relation to insurance-based investments
  • fund managers
  • stockbrokers and other firms that provide advice to retail clients on funds, structured products and derivatives
  • financial advisers
  • firms operating retail distribution platforms
full details can be found here:  However a storm has brewed up.   Have the rules been counter productive and actually misleading investors?

The relevant article in full is here but in short the Financial Conduct Authority warned last year that packaged retail investment rules introduced in 2018 have created serious ‘potential consumer harm’ and it would not enforce them to the letter.  

EU policymakers have attempted to grapple with some of these concerns, but the latest attempt has also failed, and star fund managers like Baillie Gifford are publicly criticizing the rules.

“Basically the issue is around the proposed reforms allowing historical performance data to be used for forecast returns”.

As an adviser, you can only do what you can do.  Or to put it another way – do your best in the face of regulatory inconsistencies!  

Obey whatever rules are in place at the moment, and conduct, if applicable, additional Due Diligence so as to ensure that the product being recommended “is suitable”.  The key issue, ensure that ALL clients understand the risks, that they understand that investments can be volatile, that they can go up / down, and that “you may not get back the amount originally invested” and all the other slightly cheesy relevant risks / warnings that nonetheless need to be stated. 

The key to this is the suitably documented assessment of the client’s ATR and Capacity for Loss, explain that past performance cannot be guaranteed etc and then makes sure that any investment recommended corresponds with the clients assessed ATR.   And in all cases, because you can, provide the client with all the relevant documentation, prior to transacting the business.
John.downs@ifac.eu
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