Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024

Debate between Earl of Effingham and Baroness Blake of Leeds

Wednesday 13th November 2024 Grand Committee

[The Earl of Effingham (Con)]

My Lords, I thank the Minister for bringing these statutory instruments before the Committee. I refer noble Lords to my entry in the register of interests. Some of these instruments were developed by the previous Government and some by the current Government. We welcome these measures. Together, they form part of His Majesty’s Treasury’s programme to deliver a smarter regulatory framework for financial services.

The first set of regulations governs packaged retail and insurance-based investment products, known as PRIIPs. This legislation concerns the vital area of retail investment disclosure, which is of great importance to not only the financial sector but everyday British people seeking to secure their financial futures.

The second set of regulations clarifies the interpretation of capital requirements regulation rules and adjusts the criteria for recognised exchanges. This change is essential, as it seeks to ensure that our prudential regulation, particularly in the light of evolving international standards, remains finely tuned to support our unique market parameters.

The third set of regulations refines the transparency, risk retention and reporting requirements for securitisation issuers. It should help bolster investor confidence and market stability, which we all desire. Securitisation, which packages assets together for sale to investors, plays a key role in supporting credit availability and economic growth.

Finally, the fourth set of regulations introduces new standards for consumer composite investment products—those that pull together multiple asset types such as stocks, bonds and other investments. This measure is a prudent step towards fostering trust and accessibility in the UK’s retail investment market.

Although His Majesty’s Official Opposition welcome these changes, we are conscious that we must be careful to avoid overregulation, which could stifle market participation and limit access to credit. Which key stakeholders in the industries affected by these changes have been consulted? In particular, what feedback have banks and insurance companies provided?

We on these Benches really want to see a marketplace that is both free and fair. We believe that consumers deserve clear, accurate and accessible information that empowers them to make informed choices and educated decisions. It is with this principle in mind that we approach these regulations.

[Baroness Blake of Leeds (Lab)]

My Lords, I thank all noble Lords for their contributions on these important SIs. I again emphasise that they represent an important step in ensuring that our approach to regulation of financial services is effective, proportionate and tailored to the UK.

I will pick up on some of the specific points raised. The noble Baroness, Lady Bowles, expressed concern about the FCA consultation. The FCA will consult on its proposals for the new CCI regime by the end of this year, as we have said; we look forward to its final rules being published in the first half of 2025. This will provide an opportunity for stakeholders to provide the necessary feedback on the new regime to ensure that it works as intended. Firms will transition to providing disclosure under the new CCI regime following an appropriate transition period, which the FCA will set out in due course.

Following on from that, I turn to why we are talking about investment trusts and not just shares. As we know, like open-ended funds but unlike other shares, investment trusts have an active investment strategy and associated fees. It is right that these costs should be disclosed to retail investors through tailored disclosure. Nevertheless, the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these closed-end funds. The proposed new CCI regime will provide more useful and relevant disclosure to retail investors, as well as more flexibility to tailor disclosure to clients, and will be less burdensome for firms to produce.

In response to the noble Baroness, Lady Bowles, on why investment trusts do not have zero costs, the Government recognise that the prescriptive cost disclosure methodology required by the PRIIPs regulation does not reflect the actual cost of investing in these closed-end funds. Nevertheless, it is right that investment trusts, like other products that directly market to retail investors, must provide tailored disclosure on costs, risks and performance for retail investors. This SI gives the FCA the rule-making powers to design a new regime, in consultation with industry, that works for firms and investors.

On why firms are not implementing forbearance now, I say to the noble Baronesses, Lady Bowles and Lady Altmann, that this SI gives legislative certainty to firms ahead of the implementation of the new CCI regime. Although I recognise that there may be some frustrations in the sector, as expressed, the operationalisation of the FCA’s forbearance is a matter for industry and the regulator.