This article appears courtesy of Global Investor.
By Claire Milhench
The FSA is to delay its proposed consultation with the asset management industry over disclosure for investment products at the point of sale. Speaking at the Institute of Economic Affairs Future of Fund Management Conference on Tuesday, Dan Waters, FSA director of retail policy, said that cost-benefit analysis had demonstrated a complex interaction between the costs and benefits of changes to the discloure 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 the issuing of our Consultation Paper, rather than put forward a set of proposals now that might need to be revisited. Currently we just aren’t in a position to know what MiFID is going to say about disclosure at the point of sale.”
He added that the FSA would use the opportunity presented by the delays to the MiFID timetable to further refine its proposals for the Quick Guide. This document summarises the key features of investment products, and tested well last summer with consumers and the industry. The aim is to replace the current Key Features Document with the two-sided Quick Guide.
Waters said that the EU now accepted that the so-called simplified prospectus had been a failure, and this was currently being looked at to see if something more sensible could be achieved. “I have heard of one simplified prospectus that is 80 pages long. The aim is to develop something along the lines of the Quick Guide.”
He said that recent FSA research showed that investors still struggled to make a decision when faced with product choice. “We’ve found that by trying to do something very legalistic you are just defeating yourself. We think we are getting there with the mortgage key facts documents – I would like to see something similar for investment management.”
Waters chided the industry for not always properly testing the impact of a product on consumers before launching. “Particularly, there is no research done on how products will perform in adverse market conditions.” He mentioned precipice bonds as an example of what can go wrong when providers rush to market, and argued that the increasing complexity of structured products required clear disclosure about a variety of outcomes at the point of sale.
The recent decision to allow onshore funds of hedge funds was an attempt to provide some safeguards through regulation, he added. But he was not convinced by the minimum investment approach of protection. Investors are already gaining access to products with hedge fund type characteristics through offshore or unregulated products. These include structured products linked to hedge fund indices, which are attracting some concern, and UCITS III funds.
