There has been recent concern that the new PRIPP rules allowed providers to use overly-optimistic charts on product performance documents which might mislead investors.

Since the new rules arrived on 1 January, the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulations from the FCA have required PRIIP providers to prepare and publish a Key Information Document (KID) - a stand-alone, standardised document -for each of their PRIIPs.

Firms that advise or sell a PRIIP to a retail investor must provide their client with a KID in ‘good time’ before the transaction is concluded, said the FCA.

The FCA now requires firms to ensure that their communication with clients is “fair, clear and not misleading (Principle 7 of the Principles for Business), especially if the performance scenario of a PRIIP is “too optimistic”.

The FCA said: “We understand some firms are concerned that, for a minority of PRIIPs, the ‘performance scenario’ information required in the KID may appear too optimistic and so has the potential to mislead consumers.
“There may a number of reasons for this: the strong past performance of certain markets, the way the calculations in the RTSs must be carried out, or calculation errors.”

Should a PRIIP manufacturer be concerned that the performance scenarios in their KID are “too optimistic” then the FCA allow firms to provide “explanatory materials to put the calculation in context and to set out their concerns for investors to consider.”

The FCA also advises firms, selling or advising on PRIIPs, who are concerned their performance scenarios are misleading, to provide additional explanations to their clients.

The watchdog requires firms to act “honestly, fairly and professionally, in accordance with the best interests of their clients (the client’s best interests rule in COBS 2.1.1R),” the watchdog said.