The UK’s upcoming Retail Disclosure Regime: what should firms disclose in the meantime?

PRIIPs is dead; long live the Retail Disclosure Regime. The Chancellor announced on 9 December 2022 that the Government will revoke the on-shored EU PRIIPs Regulation and the UCITS disclosure requirements. This will happen via the Financial Services & Markets Bill that could receive Royal Assent sometime in 2023. The FCA will replace the revoked rules with a new, comprehensive regime for disclosures to retail investors, but this will take time to design and implement. What will happen in the interregnum? What should firms disclose to investors in the meantime?

What will the Retail Disclosure Regime look like?

The FCA has published a Discussion Paper, consulting on the creation of a new retail disclosure regime. The FCA intends for the new regime to apply to PRIIPs, non-PRIIP packaged products, UCITS, and NURS. Contrary to the prescriptive approach in the PRIIPs Regulation, the FCA proposes a principles-based regime with a primary focus on ensuring that retail investors receive the necessary information to make informed decisions, and not to impose comparability between all types of in-scope products. This approach is consistent with that taken by the FCA in developing new regulations such as the Sustainability Disclosure Requirements and the Consumer Duty.

Timing

HM Treasury says that it wishes to give the FCA sufficient time to design a new regime. Consequently, it is likely that there will be a transitional period, following the completion of the primary legislation, in which the FCA will undertake further consultation and consumer testing of its ideas.

The FCA has not committed itself to a timeline. By way of estimate, a Policy Statement and final rules might be published in early 2024. We can assume that firms might be given 18 months to transition from current disclosures to implementing the new disclosures. On this indicative timeline, the Retail Disclosure Regime might take effect by late 2026.

What should firms disclose to retail investors in the meantime?

In the meantime, the exemption from producing a PRIIPs KID (which applies to both UCITS and NURS) will continue to apply until its statutory end date of 31 December 2026 or, if sooner, when the new regime takes effect.

This means that until the new regime takes effect:

• Managers of UCITS marketed in the UK should continue to produce a UCITS KIID in reliance on the exemption. Managers currently producing a PRIIPs KID instead may continue to do so in compliance with the UK’s revisions to the UK PRIIPs regime (which took effect on 1 January 2023) until that regime is repealed (at which point they would need to switch to a UCITS KID).
• Managers of NURS in the UK should continue to produce a NURS-KII in reliance on the exemption. Managers currently producing a PRIIPs KID instead may continue to do so in compliance with the UK’s revisions to the UK PRIIPs regime (which took effect on 1 January 2023) until that regime is repealed (at which point they would need to switch to a NURS-KII).
• Investment Trusts will likely need to produce a PRIIPs KID in compliance with the UK PRIIPs regime (including the 1 January 2023 revisions) because those trusts are not subject to the UCITS/NURS exemption.
• Note that managers of UCITS marketed in the EU will need to produce a PRIIPs KID in compliance with the EU PRIIPs regime (including the 1 January 2023 revisions, which are distinct from the UK’s revisions to the UK PRIIPs regime).

Could firms produce a principles-based disclosure before the new regime takes effect?

Whether managers of products, such as Investment Trusts, that are in-scope for the PRIIPs Regulation, but not subject to an existing exemption, must continue to produce a PRIIPs KID after the Financial Services & Markets Bill is enacted will depend on the provisions detailed in the primary legislation. It might be that those in-scope firms will be given alternative obligations.

If the obligation to produce a PRIIPs KID is retained during the interim period, might those firms be permitted to produce a principles-based disclosure document even before the details of the Retail Disclosure Regime are finalised?

The Consumer Duty, which takes effect from July 2022, requires firms to ensure retail consumers’ understanding and support. Given the problems identified in relation to the PRIIPs KID in both HM Treasury’s and the FCA’s consultations, some firms might take the view that the production of a less prescriptive disclosure may better serve retail investors’ needs before the future disclosure regime comes into force. Having said this, it seems unlikely that the FCA would take supervisory action with firms that rely on their regulatory obligation to produce (potentially misleading) PRIIPs disclosures.

Immediate next steps

The FCA’s consultation will close for feedback on 13 March. HM Treasury’s parallel consultation, which consults on their intention to revoke the existing disclosure requirements and the process to do so, will close on 3 March.