Last week, the Association of Investment Companies (AIC) called for PRIIPs Key Information Documents to be suspended, saying that they are ‘systematically flawed due to their reliance on past performance as a basis for future projections’.

The AIC supports its call with a substantial 38-page report, titled Burn before reading, understanding and addressing the dangers of Key Information Documents.

The report is the Association’s response to the Financial Conduct Authority’s (FCA) Call for Input on PRIIPs regulation and unambiguously sets out the AIC’s position on KIDs.

Launching the report, Ian Sayers, Chief Executive of the Association of Investment Companies said: ‘The evidence is overwhelming. KIDs are not simply unhelpful, they are actively misleading.’

The AIC report urges the FCA to ‘act swiftly to protect consumers and warn them not to rely on these documents when making investment decisions’.

It also wants the Treasury select committee to launch an enquiry into KIDs because of what it calls the ‘failure of policymakers and regulators to take action to protect consumers’.

Regulation plagued by problems

The PRIIPs regulation – and in particular, its requirement for the KID, a document designed to make comparison between different investments easier – has been dogged by challenges since it came into force on 1 January this year.

Before the end of January, the FCA was having to clarify expectations on PRIIPs communications – specifically around the performance scenarios that have to be included in KIDs.

By February, concerns about the regulation were making headlines, and in June, FCA chief executive Andrew Bailey made it clear that the Authority was looking to address concerns around the regulation’s disclosure requirements. This promise resulted in the Call for Input in July.

What are the AIC’s issues with KIDs?

The Association is concerned that the use of past performance as a comparator is flawed and risks misleading investors, particularly inexperienced ones. Ian Sayers said that ‘As more experienced investors will just ignore them [KIDs], it is the less experienced who will suffer the most’.

The AIC’s concerns fall into four areas:

  • Misleading performance scenarios
  • Misleading disclosure of risk
  • The fact that the performance scenarios are misleading in all market conditions
  • The fact that using the risk indicator in combination with the performance scenario creates even greater risk to consumers

What should firms do about PRIIPs and KIDs?

While the FCA is clearly trying to address some of the perceived failings around PRIIPs and KIDs, this won’t have instant solutions. In the meantime, you need to meet the regulation’s requirements.

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