Client communication aspects of recent regulatory updates: What’s next and what we should keep an eye out for later this year

Just in…

Pre-sale Key Information Documents (KIDs) are now required for all Packaged Retail and Insurance-based Investment Products (PRIIPs) that don’t publish UCITS KIIDs. Following heavy criticism about misleading performance scenarios, the FCA says firms can now produce “explanatory materials to put the calculation in context”. Advisers can also “consider how to address this, for example by providing additional explanation as part of their communications with clients” without diminishing or contradicting the content of the KID.

Many fund groups that don’t produce PRIIPs KIDs have also been caught by the regulation, as they have to supply their fund information, using the industry-standard European PRIIPs Template (EPT), to those who need their data to produce their own KIDs.

MiFID II also took effect on 3 January, affecting most aspects of the investment industry. For client reporting, the big change is the new pre-sale costs and charges projection, setting out all the costs of any investment products and services, including any platform, DFM and advice costs and an illustration of the effect of those costs on investment returns. Fund groups and distributors also need to make sure they only sell funds to the right target market. Getting the fund costs and target market information to distributors has been made a bit easier through use of the standardised European MiFID Template (EMT).

The highest profile impact of MiFID II has been the disclosure of fund transaction costs, which has thrown up some extreme – and dubious – numbers, but we expect this to settle down over time.

Coming up…

With PRIIPs and MiFID II yet to settle down, attention should now be on the next regulations – DC pensions transaction cost disclosure (which is technically live now), other institutional investment cost disclosure, feedback from distributors to fund groups of sales to the “negative target market” and the big one: GDPR, which ramps up both the obligations on anyone handling personal data and the penalties for abuse.

The IA has produced a template for fund groups to provide the costs for scheme Independent Governance Committees (IGC) or Governance Advisory Arrangements (GAA) to report to their members, but it will be a challenge to deliver it all by the end of Q1 2018, when it will first be needed. The task is made harder by many fund groups not being aware of their funds being held in group pension schemes, so the report should probably be completed for all funds, just in case.

Further out…

MiFID II appears in this section as well, as annual personalised reports of the actual costs incurred over the previous year will need to be sent to clients from the start of next year. The EMT fields with the fund data for this will gradually be populated during 2018.

Delayed to 1 October 2018 is the Insurance Distribution Directive (IDD), which expands the scope of the IMD. Among other things, this introduces MiFID II-style post-sale reports for Insurance Based Investment Products (IBIP) and pre-sale suitability and appropriateness reports for IBIPs not classed as non-complex.

And then there’s the review of the PRIIPs Regulation by the end of 2018.

To find out more about how we can help click here.