In the wake of Brexit, the U.K.’s Financial Conduct Authority (FCA) is rethinking retail investor disclosure — an area previously governed by European Union rules.
The FCA issued a discussion paper Tuesday that seeks feedback on the design of new disclosure rules that will aim to ensure retail investors are getting clear, useful information — such as the details of the costs and charges associated with investing, and investment risk — that enable sound investment decisions.
According to the paper, the existing rules haven’t worked particularly well, with a 2017 study finding that less than 3% of retail investors said they read the required pre-sale disclosure documents.
Additionally, the regulator said that retail distribution has shifted in recent years, with investors increasingly trading online, yet the rules remain designed for sales made with advice and disclosure delivered on paper.
“A review of retail disclosure is necessary to help financial services to be fit for the future,” it said.
To that end, the U.K.’s Treasury recently published its own consultation paper on the future of retail investor disclosure, which signalled the government’s intention to scrap the EU rules and charge the FCA with crafting a new regime.
In its paper, the FCA said its newly adopted consumer duty, which emphasizes outcomes-based regulation, will also guide its design of “a new disclosure regime which is similarly outcomes-focused and reduces rigidity and one-size fits all rules. This should enable greater innovation in disclosure that benefits retail investors and firms.”
In addition to consulting on the content of retail investor disclosure, the FCA’s paper seeks input on how disclosure should be delivered, in terms of the format and timing of its delivery, and who should be responsible for producing it.
“Presentation is key in order to get consumers to engage with the information they are provided,” the regulator noted.
“The current rules make it very difficult for consumers to get the information they need in the way they need it to help them make effective investment decisions,” said Sarah Pritchard, executive director of markets at the FCA, in a release. “We now have the flexibility to design a new regime which is less rigid and more focused on the outcome we are seeking — we want consumers to have the confidence to invest and understand the levels of risk involved.”
Additionally, the regulator said it’s seeking input on how to “future-proof” retail disclosure regulation so rules don’t needlessly restrict future industry innovation.
The deadline for comments on the paper is March 7, 2023.