FSA Issues Update On Investment Product Disclosure

by Robin Pilgrim, LawAndTax-News.com, London

29 March 2006

The UK's Financial Services Authority last week issued an update on its proposals to reform the product disclosure regime for investment products.

The FSA had planned to issue a Consultation Paper in March, setting out proposals for a full package of new disclosure material. These proposals were to include:

• Replacing the current Key Features Document (KFD) with a two-sided Key Facts branded 'Quick Guide', setting out key product information; and
• Replacing the current Key Features Illustration (KFI) with separate projections and charges sheets. The current three-rate projection model would be replaced with a single-rate model, with strengthened risk warnings.

However, detailed cost benefit analysis undertaken by the FSA showed that there would be significant costs to implementing these proposals, particularly changes to the projections and charges documentation.

The financial regulator additionally revealed that consumer testing, alongside current examples of good practice, had indicated that the benefits of change would be limited.

Equally, delays in the Markets in Financial Instruments Directive (MiFID) negotiations have resulted in the full impact on disclosure remaining uncertain.

The FSA explained that it would be inappropriate to consult on changes to the disclosure regime while such uncertainties remain.

Dan Waters, FSA Director of Retail Policy, confirmed on Friday that:

"Our wide ranging and rigorous cost-benefit analysis has demonstrated a complex interaction between the costs and benefits of changes to the disclosure regime. In light of this and the lack of clarity surrounding the final impact of MiFID we believe there is little choice but to delay issuing our Consultation Paper, rather than put forward a set of proposals now that might need to be revisited."

"However, we will use the opportunity presented by the delays to the MiFID timetable to refine further our proposals for the Quick Guide."

"We remain committed to engaging with the industry and consumer bodies to arrive at a set of proposals that will achieve our aims, without imposing disproportionate cost on the industry."

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