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The FCAs work on disclosure

The ABI recently met with the FCA’s disclosure and promotions teams to catch up on the many work streams relating to disclosure that are currently being carried out.

The FCA's focus in this area has come from a number of directions, including:

  • Smarter disclosure for life and investment products: Under the expectations gap, the FCA identified three main areas of focus: improving/smarter disclosure, project innovate and retail investment advice. Regarding smarter disclosure (for life and investment products), the FCA have been tasked to understand how disclosure can be made more effective, and have a mandate to look at their handbook and see if their rules are driving bad firm behaviour. They are also aware of the requirements set down in the European Directives (MiFID2 and PRIIPs) and are ensuring that a joined up approach is taken.
  • Non-life disclosure: There is not’t one particular piece of work that is happening in this area, but rather a range of work streams looking at  how information is disclosed to consumers ie: add-on’s market study remedies, PCW’s thematic review findings, Competition and Market Authority investigation into private motor insurance and project innovate. They are co-ordinating the work on these areas to make sure engagement with the industry is as fluid as possible and to ensure work is consistent and coordinated.
  • Disclosure in EU directives: The FCA are aware that the European Directives, PRIIPs and MIFID2, will determine what disclosure regimes are developed at a UK level and are making sure the work they are doing on disclosure is consistent and fits in with the European requirements.
  • Disclosure of transaction costs for DC pensions: The FCA are also working with the DWP and industry to develop a regime for IGCs to report on charges and costs, including transaction costs. This work is a result of the Command Paper, which is also flanked by a requirement in the Pensions Act 2014 for the FCA to make regulations and rules about disclosure of transaction costs to scheme members.

Smarter disclosure for life and investment products

The ABI attended the FCA disclosure roundtable in June with other members of the insurance industry including BIBA, APFA, and other intermediaries. Discussions focused on the barriers to producing better marketing materials; what disclosure practices worked well; how new technology/innovation being used?; to consider how behavioural economics helps people to focus on particular areas; and to look into the rulebook and identify any disclosure rules which are no longer achieving their purpose.

The FCA are now planning to issue a Discussion Paper later on in the year.  The paper will challenge the industry regarding current disclosure practices and ask for examples and evidence of where the FCA rulebook does limit firms’ disclosure practices.

The ABI has been engaging with the FCA on this piece of work and intends to hold a meeting with members after the summer to discuss how we should provide input into the discussion paper.

If you have any questions on this please contact Lucy Ashton.

Non-life disclosure

There are a lot of work streams in motion looking at disclosure in the non-life sector, involving the general insurance policy and supervision policy teams as well as the disclosure and promotions team. The work that is currently being undertaken includes add-on’s market study remedies, PCW’s thematic review findings, Competition and Market Authority investigation into private motor insurance and project innovate. The FCA are co-ordinating the work on these areas to make sure engagement with the industry is as fluid as possible.

While the discussion paper on smarter disclosure is expected to focus more on life and investment disclosure, there will be an element focusing on non-life disclosure, which will provide and opportunity for firms to look at what is in the rulebook and how it might be improved.  There is also a close link to the work being carried out on project innovate.

The ABI is also working on all these pieces of work to make sure that the industry is represented in a coherent and consistent fashion. We are currently having discussions with members on project innovate, and the add-ons market study remedies.

If you wish to be involved in these discussions, or get an update on these pieces of work please contact Eva DeMarchi-Taylor

PRIIPS

The FCA was heavily involved in the negotiations on the PRIIPs Regulation and are now working on with EIOPA to draft technical standards (RTS), which will set down the detail of how the key information document should be drawn up. The drafting of the RTS has been divided into 3 sub-groups; Costs & Charges (led by British & Germans), Risk & Reward (led by French & Dutch) and Wrapper KID (led by the French).  These sub-groups are meeting on a monthly basis with the intention of publishing a discussion paper by the end of the year.  Consumer testing will also take place and will be followed up by a final consultation next June. This Regulation must be implemented in Member States by October/November 2016.

The FCA team are chairing the PRIIPS sub-group on the disclosure of costs and charges and are represented on the sub-groups looking at risk/reward and the wrapper KID. The priority for the FCA is that the design of the KID takes account of evidence on engaging consumers and that PRIIPs and MiFID2 can work together. The ABI shares this views and is working closely with the FCA and also EIOPA to make sure the views of the UK industry, specifically on the wrapper KID, are clearly communicated.

If you have any questions on this or wish to be involved in the ABI technical working groups please contact Pascale Lamb

MiFID2

The FCA disclosure team are looking at the disclosure of costs and charges in the investor protection provisions of MiFID2 and are represented on the ESMA Task Force. The Directive is due to be implemented by end 2016.  The ABI is following the developments on the investor protection provisions of MiFID2 specifically the costs and charges disclosure elements. While this may not have a direct effect on the insurance industry, it is the intention there will be consistency in costs and charges disclosure in MiFID2 and PRIIPs.

If you have any questions on this please contact Pascale Lamb

Disclosure of pensions transaction costs

This is a cross-cutting project that includes the FCA life and pensions and asset management policy teams, to work on developing proposals on the disclosure of transaction costs for DC pensions. This work is broken down into two phases. For the first phase, the FCA will be consulting on rules for the role of the IGCs, which are due to come into place for April 2015. For the second phase the FCA will look at how this cost information should be disclosed. They are working with ourselves and the IMA to look at how an industry approach can be developed.  Due to the close link with the proposed disclosure rules in MiFID2 and PRIIPs on costs and charges, the FCA are ensuring they are linking these two pieces of work together.

The ABI is focusing attention on this issue, engaging with DWP, FCA and the IMA. If you have any questions on this please contact Ben Gaukrodger or Colette Best

Other associated pieces of work

In addition to the main pieces of work the FCA is carrying out on disclosure, there are also some additional pieces of work that impact on members:

  • Projections Regime: the new FCA projections regime came into force in April 2014. There is a potential for the PRIIPs disclosure to alter the current FCA regime if the agree RTS differ from the current approach. The ABI is aware of this opportunity and is linking this to the work on PRIIPs.
  • IORP2: This is aimed at DC and DB trust based schemes. Proposed disclosure requirements include a 2 page pensions benefit statement akin to the PRIIPs KID. The approach designed in IORP2 could have a possible impact on personal pensions and GPP disclosure in the future. Further, while personal pensions and GPP’s are not in the scope of PRIIPs, there is a scope review in four years’ time. The ABI is mindful of this when looking at PRIIPs disclosure and the pensions benefit statement in IORP2.
  • Clarity of fund charges thematic: This review set down a requirement for UCITS funds and those selling UCITS funds to use the ongoing charges figure (OCF) as the headline in their marketing material. As a follow up to this thematic, the FCA have issued a consultation about potential revisions to the COLL rulebook. While the consultation is aimed at the disclosure of UCITS funds, and based on the IMA Statement of Recommend Practice (SORP), we believe it is important to consider the disclosure of costs across all types of funds and that the review also takes in unit-linked/non-UCITS funds. We are recommending to the FCA that at the fund level, all types of funds are subject to the same rules for the disclosure of charges, arguing that a consistent presentation of information across all types of funds will help customers compare charges and avoid unnecessary confusion.
  • With profits thematic: a part of this review intends to look at the disclosure documents for with-profits. This is due to be issued late 2015.
  • Consumer Rights Bill: There are requirements in the draft Bill for all important terms and conditions to be transparent and prominent. Royal assent on this bill is due in October 2015.

Last updated 01/07/2016