FCA to end certain 'ineffective' communication and reporting requirements for firms

It intends to end requirements for some firms to produce a 'consumer-friendly principles and practices of financial management' (CFPPFM) document and regular short reports; and to remove some template disclosure documents used by firms to inform customers about their services and the costs of those services.

FCA strategy and competition director Christopher Wooland said that the proposed changes would give firms "freedom to communicate with their customers in a more flexible and open way".

"We would like to see firms changing the way they interact with their customers," he said. "We have been encouraged to see a number of firms already doing this."

The consultation, which closes on 18 December, was prompted by the FCA's 'smarter consumer communications' project, which began earlier this year. Further changes to the rules governing firms' communications with their customers could emerge once the regulator has reviewed feedback received in response to its June 2015 discussion paper, it said.

The CFPPFM was introduced in 2005 and is used by with-profits insurers to provide policyholders and potential policyholders with clear and understandable information about their policies. However, few consumers tend to read these documents and those who do find it difficult to understand, the FCA said in its consultation paper.

The EU's Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, which comes into force on 31 December 2016, will introduce a new Key Information Document (KID) requirement for all retail investment product manufacturers, including with-profit insurance contracts. Although the information provided by the KID will mostly be different to that made available in the CFPPFM, the FCA said that this new document would meet the same transparency aims once introduced.

Fund managers are currently required to produce half-yearly disclosure reports, known as 'short reports', for each UCITS and non-UCITS scheme that they manage. These reports are supposed to provide investors in the funds with useful and relevant information about the fund's performance and activities. However, the FCA said that these reports were rarely shorter or clearer than funds' annual reports, and that the information provided was rarely timely or of use to investors.

Although the FCA is proposing to do away with short reports, it will consider more "effective and engaging" ways of providing this information to consumers as part of its full response to the discussion paper, it said.

The consultation also proposes deleting certain templates introduced as part of the Mortgage Conduct of Business (MCOB) and Insurance Conduct of Business Sourcebook (ICOBS) disclosure rules. The Initial Disclosure Document (IDD) and Combined Initial Disclosure Document (CIDD) are used by some home finance, investment and general insurance firms as a means of providing the information they must send to consumers to help them compare products and services, while the Services and Costs Disclosure Document (SCDD) meets similar requirements in relation to retail investment and packaged products.

The FCA said it was concerned that the templates "create a risk that firms adopt a 'tick box' approach to their disclosure obligations rather than designing an effective disclosure to help their target customers understand the scope and cost of their service".

"Also the templates, though only guidance, may still be viewed by firms as a constraint on finding new ways of engaging consumers on key messages," it said.

Firms would still be entitled to present the required information to consumers in the same way as set out in the templates once they were officially withdrawn, the FCA said. However, they would not be able to use the 'Key Facts' logo on any of these documents once the rules changed, according to the consultation.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said that the proposed changes should be "just the tip of the iceberg".

"Rules covering the disclosure of information for retail financial products are out of date and in many cases inadequate for today's world," he said.

"The rules date from when communications had to be solely on paper and pre-dated new methods of messaging such as email and YouTube. Today, it is possible to upload a short video to YouTube and explain things much easier in just a few minutes. Regulators need to re-engineer disclosure to fit with online purchasing and servicing of clients and move with the times. Dumping a few redundant documents is not enough," he said.

"The loss of the CFPPFM document will not be mourned by many but these product providers still need to ensure that customers understand the benefits, especially the unique benefit of smoothing in volatile markets, that their products can bring. Relying on the new KID will not be enough. These providers risk losing out to more easily understood products which, unknowingly to many, also carry more investment risk for the customer. And, if that is what happens, then that will not be a good outcome for many customers," he said.