The Financial Conduct Authority (FCA) has outlined the changes to be made to its rules and guidance in respect of disclosure requirements for packaged retail and insurance-based investment products (PRIIPs), ahead of new EU regulations, which come into force on 1 January 2018 after the European Commission postponed their introduction by a year.

The policy statement (111-page / 987KB PDF) also clarifies which investment products will be subject to the new regulations.

Investment firms selling products which are classified as PRIIPs must publish key information documents (KIDs) for retail investors. The FCA's statement clarifies how the requirements for the KIDs will be reflected in its handbook, a year after the European Supervisory Authorities first released details on what should be included in the documents. 

Each KID will have to be three pages long and give specific information in a pre-determined sequence.

Insurance law expert Chris Riach of Pinsent Masons, the law firm behind Out-Law.com, said the statement provided "much-needed clarity" after a previous absence of detail ahead of the original implementation date.

The PRIIPs regulation was delayed in part so the European Commission could redraft the Regulatory Technical Standards which lay out the information required in a KID. The new RTS were published in March 2017.

Once the PRIIPs regulation is in force products falling into its scope will no longer have to produce key features documents and key features illustration as they do currently.

Firms will be able to provide necessary information relating to the Solvency II directive in a KID or another document(the FCA having clarified that the Solvency II disclosure obligations will continue to apply to to PRIIPS which are insurance products, after previously suggesting in its consultation paper that this would not be the case).

PRIIPs include investment products such as authorised unit trusts, structured investment products, derivatives and insurance-based investment products including unit-linked policies, with-profits policies and Holloway sickness policies.

The FCA said types of investment product which would not fall under the PRIIPs regulation included non-life insurance products, corporate shares and sovereign bonds held by a retail investor, pensions products, occupational pensions schemes, fixed annuities, fixed debentures, investment trust savings schemes and individual savings accounts (ISA) wrappers.

Riach said the clarification of what would and would not be considered a PRIIP was welcome. 

"As we approached the original implementation date of 1 January 2017, we found a number of clients had queries about whether specific products and services would be considered PRIIPs and so require the production of a KID, which were difficult to answer based on the state of the legislation at that time," he said. "One notable inclusion on the 'not a PRIIP' list is ISAs. We had been asked about ISAs in this context several times during 2016 and consider the FCA's interpretation to be correct."

Although the policy statement will be a step forward in assisting investment firms to prepare for the PRIIPs legislation, Riach said that there was still some uncertainty as the implementation date approached. One area which remains unclear is whether closed book or legacy products which meet the PRIIPs test will require KIDs.

"What is also interesting about the FCA's policy statement is that the FCA appears to consider the Commission and ESAs have work to do to provide further clarity on the scope of the new rules," said Riach. "In particular, the FCA was unable to respond to many requests received during the consultation for clarity on scope and has deferred back to Europe on these points.  The FCA does hint that it may be able to communicate separately on this later this year."

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