The FCA has published a statement in relation to PRIIPs KIDs (which came into force for many investment products on 1 January 2018). In the FCA's statement, it seems to acknowledge the well-publicised issues with the PRIIPs KID's 'performance scenario' section. This follows recent reports that regulators were standing by to provide additional guidance on the subject.
"We understand some firms are concerned that, for a minority of PRIIPs, the ‘performance scenario’ information required in the KID may appear too optimistic and so has the potential to mislead consumers. There may a number of reasons for this: the strong past performance of certain markets, the way the calculations in the RTSs must be carried out, or calculation errors."
The industry has opposed the methodology for the performance scenario disclosure since its inception. Some golden examples of its peculiar results have been widely reported (check out the FT's article Mis-selling fears erupt over 'returns of 1m% plus' - yes, you read that correctly).
The FCA avoids making any explicit statement as to whether firms' concerns are well founded. However, it goes on to say that it is comfortable for firms to provide additional material to contextualise the disclosure and set out their concerns.
Therefore, while the FCA is stopping short of giving a 'no confidence' vote on the new disclosure, it is granting firms the opportunity to undermine their own regulatory disclosures.
It is quite an extraordinary result given the regime's driving aim of transparency. However, on my experience, I expect this type of ancillary disclosure may be widely adopted.
Where a PRIIP manufacturer is concerned that performance scenarios in their KID are too optimistic, such that they may mislead investors, we are comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider.