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Rushed consultation on KIDs changes criticised

15 November 2018

The Association of Investment Companies has again called for Key Information Documents to be suspended following the proposals put forward by the European Supervisory Authorities on changes to KIDs.

The ESA has proposed a series of changes and addresses in particular amendments to the information regarding investment products’ performance scenarios. However, the speed at which the industry is expected to respond to the consultation before amendments are submitted has attracted criticism.

Ian Sayers, chief executive of the AIC (pictured), said: “Given that it took over 10 years to get where we are today, it is unrealistic to expect that the problems with KIDs can be resolved in 10 weeks. The proposals may be a step in the right direction, but fail to address the fundamental flaw of using past performance to predict the future. The proposed changes look too technical for ordinary investors and do not address our concerns about the understatement of risk.”

Sayers said the proposals demonstrate why the KIDs rules should be suspended to allow time to fix the issues properly and on a permanent basis.

Laura Suter, personal finance analyst at AJ Bell, commented: “Many parts of the industry have called for KIDs to be changed and it’s disappointing that this latest consultation is attempting to rush through changes before European parliament elections next year, which has severely limited the scope of the changes. ESA acknowledges that it can’t carry out the level of work needed before it submits the amendments in January next year.”

Suter said a fundamental problem with the KID rules is that the projections of the returns investment are likely to enjoy based on past performance and a decade-long bull run can look “wildly optimistic.”

She added: “What’s more worrying is that the documents are due to be rolled out to UCITs funds from 2020, meaning they will be seen by a far wider group of investors. The last thing the investment industry needs is for investors to be sold on optimistic returns forecasts, only to be disappointed if unfavourable markets hit and ultimately lose trust with the industry.”

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