Gina Miller has said the Financial Conduct Authority’s latest findings on Mifid II and Priips are “better late than never” but miss three fundamental points which she has called on the regulator to address.
On Thursday the watchdog published key findings of work it has undertaken to assess how effectively asset managers and intermediaries, such as wealth managers, disclose essential costs and charges information introduced by Mifid II and Priips to retail customers.
It found asset managers could be “misleading” investors with their inconsistent approach to calculating and disclosing costs and charges, and that generally they do not disclose all associated costs and charges.
And where full disclosures are made, it said there were often inconsistencies between documents and the website, making the information difficult to understand for consumers.
It said asset managers should review their cost disclosures to ensure that they are “clear, fair and not misleading”.
Legislation, not guidance
But reacting to the FCA’s update, Miller, a long-term critic of the FCA’s approach to policing Mifid II, told Portfolio Adviser Mifid II is legislation not just guidance, which came into force more than a year ago, meaning stricter penalties should be handed out for non-compliance.
“Where are the fines or ‘Dear CEO’ letters to the asset managers they found that were not generally disclosing all associated costs and charges?” she said.
Miller also said the FCA should be “gold-plating the regulation” by mandating a template to ensure cost disclosure is comparable as well as clear, fair and not misleading.
Finally, she said there is a huge competitive disadvantage for those firms that are following the legislation and complying lawfully.
“The FCA has a duty to promote effective competition in consumers’ interests which mandates them to not just identify but address competition problems,” she said. “They are failing in this operational objective. In April 2015, they were given powers to enforce against breaches of competition law, so why aren’t they?”
In January, Miller called on FCA chief executive Andrew Bailey to resign if he is not willing to enforce Mifid II fees disclosure regulation. The call came after Bailey told MPs at a Treasury select committee hearing UK regulator had not taken enforcement action against any investment firm over Mifid II breaches.
Wealth managers inconsistent
The FCA’s findings also said that wealth management firms in the sample interpreted the rules inconsistently, making like-for-like comparisons of costs and charges difficult.
It said: “Some firms said they struggled to obtain all the data they need from other firms to enable disclosure of all costs. Firms involved in the design, manufacture and distribution of products need to work together to ensure all costs and charges are disclosed properly to customers.”
Problem Kids
Elsewhere, the FCA published the findings of the Call for Input which sought views on the initial experiences of the requirements introduced by Priips.
It highlighted concerns that some Key Information Documents (Kids), introduced under the Priips regime, were displaying negative, zero or very high transaction costs that are unlikely to fairly represent the true transaction cost of the product.
However, the FCA believes the Priips methodology is working as intended. It said the evidence suggested that discrepancies in transaction costs were largely due to poor application of the methodology by firms, not the methodology itself.
The Association of Investment Companies has been highly critical of Kids in recent months, slamming them as “misleading” and “reckless” for showing risk indicators attached to investment trusts as often lower than their ‘sister funds’, when they should be higher.
AIC chief executive Ian Sayers said: “We welcome the FCA’s intention to work in Europe to address these problems, but this will take time, and meanwhile consumers continue to be misled. The regulator should take a creative and urgent approach to protect UK consumers from harm, for example by ensuring that information in Kids does not spread to other parts of the market.”
FCA chief executive Andrew Bailey said: “Mifid II and Priips brought enormous change to how firms operate and the information they are required to give their customers. While awareness of the rules appears good, we found that firms take inconsistent approaches, risking confusion for customers, who may be misled about how much they are being charged.”
