Industry responds to IA’s calls for focused approach on PRIIPS
02 October 2018 London
Image: Shutterstock
The Investment Association (IA) has responded to the Financial Conduct Authority’s (FCAs) call for input, concerning changes to the Packaged Retail Insurance-based Investment Products (PRIIPs) regulation.
“This subject is far from settled, and no easy solution is available at the moment,” that’s according to Andre Nogueira, director of Trading Analytics at ITG.
Responding to the FCA’s call for input, IA has expressed concerns in regards to the PRIIPs regulation, in particular, its current methodology for calculating transaction costs.
The IA said, though it is “wholly supportive of the principle behind PRIIPs, to provide savers and investors greater transparency and comparability across funds”, it stated this principle is “being compromised by new performance scenarios and cost calculations that are potentially highly misleading”.
The association has called for urgent action to address what it states are “failings in the design of PRIIPs, which also impact the UK defined contribution (DC) pensions market”.
It also called for immediate action by the FCA to suspend and replace flawed calculation methodologies in the second Markets in Financial Instruments Directive (MiFID II) and DC workplace pension scheme disclosure across the UK, as well as delaying the extension of PRIIPs to the wider European fund universe until a rigorous, evidence-based solution is found.
Chris Cummings, chief executive of the IA, commented: “The FCA rightly called for evidence of investor detriment caused by the new rules. It has been delivered. The case is now proven and it’s time for action. Regulators in the UK and across Europe should now engage in an open dialogue and collaborate with the industry and its customers to develop the best solutions for savers and investors.”
Alex Dorfmann, director of product management at SIX, said: “Any possible change to the methodology of PRIIPs, including the upcoming regulation of European retail funds, reinforces the importance of adopting flexible compliance systems.”
He added: “In order to ensure compliance with potential changes to PRIIPs, firms must provide vast amounts of data on client investment profiles and credit ratings as well as documents describing the nature and risk of financial instruments, including past performance and cost allocations. This is a long and costly process and the market should already be ensuring that they have access to all data and information necessary to adapt to any new or changing regulatory requirements.”
Andre Nogueira, director of Trading Analytics at ITG, commented: “The calculation of the transaction costs for PRIIPs and UK DC pensions as it stands at the moment presents many challenges to investment firms and any effort to simplify and make them more meaningful is welcome.”
He added: “One of the issues that have caused confusion in the industry is “negative costs”, which can happen under the current methodology. The recommendation of the IA would go a long way towards reducing this, but the actual implementation could be complex because tying up individual executions to specific funds requires an allocation logic whose complexity is beyond most firms' capabilities.”
“This subject is far from settled, and no easy solution is available at the moment,” that’s according to Andre Nogueira, director of Trading Analytics at ITG.
Responding to the FCA’s call for input, IA has expressed concerns in regards to the PRIIPs regulation, in particular, its current methodology for calculating transaction costs.
The IA said, though it is “wholly supportive of the principle behind PRIIPs, to provide savers and investors greater transparency and comparability across funds”, it stated this principle is “being compromised by new performance scenarios and cost calculations that are potentially highly misleading”.
The association has called for urgent action to address what it states are “failings in the design of PRIIPs, which also impact the UK defined contribution (DC) pensions market”.
It also called for immediate action by the FCA to suspend and replace flawed calculation methodologies in the second Markets in Financial Instruments Directive (MiFID II) and DC workplace pension scheme disclosure across the UK, as well as delaying the extension of PRIIPs to the wider European fund universe until a rigorous, evidence-based solution is found.
Chris Cummings, chief executive of the IA, commented: “The FCA rightly called for evidence of investor detriment caused by the new rules. It has been delivered. The case is now proven and it’s time for action. Regulators in the UK and across Europe should now engage in an open dialogue and collaborate with the industry and its customers to develop the best solutions for savers and investors.”
Alex Dorfmann, director of product management at SIX, said: “Any possible change to the methodology of PRIIPs, including the upcoming regulation of European retail funds, reinforces the importance of adopting flexible compliance systems.”
He added: “In order to ensure compliance with potential changes to PRIIPs, firms must provide vast amounts of data on client investment profiles and credit ratings as well as documents describing the nature and risk of financial instruments, including past performance and cost allocations. This is a long and costly process and the market should already be ensuring that they have access to all data and information necessary to adapt to any new or changing regulatory requirements.”
Andre Nogueira, director of Trading Analytics at ITG, commented: “The calculation of the transaction costs for PRIIPs and UK DC pensions as it stands at the moment presents many challenges to investment firms and any effort to simplify and make them more meaningful is welcome.”
He added: “One of the issues that have caused confusion in the industry is “negative costs”, which can happen under the current methodology. The recommendation of the IA would go a long way towards reducing this, but the actual implementation could be complex because tying up individual executions to specific funds requires an allocation logic whose complexity is beyond most firms' capabilities.”
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