Investment companies will have more freedom in how they present disclosures to customers to avoid “information overload” as part of new measures by the UK financial regulator to boost investment.
The Financial Conduct Authority has also announced proposals to change how it is determined who is classed as a professional investor.
New investment information rules will be introduced to replace “prescriptive and complex templates” inherited from the EU that mean investor disclosures “often contain excessive amounts of information, are unengaging and typically rely on legalistic financial jargon”, the FCA said.
It added the “more flexible and proportionate approach” would allow distributors of financial products to highlight key points and avoid “information overload” that often deters investors from reading disclosure documents.
The new rules, to be implemented over the next 18 months, will apply to many investment products with returns based on the performance of underlying assets, including ETFs, mutual funds, insurance-based products and derivatives.
Stephen Johnston, head of fund communications solutions at Broadridge, said the FCA’s new product information rules were “an important step towards smarter retail disclosures that genuinely drive better outcomes for investors”.
The regulator also presented proposals to change how people can be categorised as professional investors, which allows them to invest in a wider range of products without the same level of protection provided to retail investors.
It plans to raise the threshold for how much in investable assets someone needs to qualify as a professional investor from £500,000 to £10mn. But investors could instead be assessed to have sufficient “expertise, experience and knowledge” to be sure they understand the risks of managing their own money to achieve the restricted status.
The regulator said companies would also need to obtain “informed consent” from people that they are opting out of the protections provided to retail investors.
The current rules require most people to meet at least two of three criteria to be classed as professional investors: having more than £500,000 to invest, doing at least 10 trades a quarter for the past year and at least a year of working in financial services.
The FCA said the rules were “no longer fit for purpose” because they were too narrow and open to misuse. It said they “can lead to individuals with limited financial resources or knowledge of financial products being sold speculative, complex and high‑risk products which can lead to significant losses and consumer harm”.
“Today’s measures support investment risk culture right along the spectrum,” said Simon Walls, executive director of markets at the FCA. “They ensure that firms can compete to give retail customers material that informs and engages them.”
The UK’s £260bn investment trust sector welcomed the FCA’s rule changes for ending a requirement to separately report their costs that made them appear more expensive than other types of fund.
“This is a victory for common sense,” said Richard Stone, head of the Association of Investment Companies, which represents investment trusts.
On Thursday, the regulator will announce a big overhaul in the way people in the UK are given financial advice. This will allow savers to access “targeted support” from companies providing generic suggestions without needing to meet the restrictions around formal advice.
