The product information will be contained in a new document known as the Simplified Prospectus. EU rules require this document to be offered to anyone who wants to invest in a collective investment scheme that holds a UCITS certificate.
The FSA's approach builds on the existing UK regime for investment product information - the Key Features document - by adding new information requirements only where it is necessary to meet the revised EU standards.
The new EU information requirements include:
• a 'Total Expense Ratio' (TER) figure showing the costs and charges of the
fund. The figure will not take account of front-end charges, exit costs or certain fund expenses such as dealing costs.
• a 'Portfolio Turnover Rate' (PTR) figure, to reflect the volume of dealing within the fund; and
• the historic performance of each UCITS fund showing up to ten years' annual returns.
Dan Waters, FSA Director Retail Policy and Asset Management Sector Leader, said: "The Simplified Prospectus is the final building block completing our implementation of the Third UCITS Directive. The EU rules provide a common set of content requirements that aim to see that consumers get consistent information about UCITS funds bought in any EEA state. But we also want to make sure that prospectuses are clear and readily understandable for consumers in the UK.
"So we propose to retain our existing approach to providing
customer-friendly product information – for example, we ask firms to use a 'Question and Answer' format to set out the information required, because we know from research that consumers find this style of presentation helpful.
"And we have decided to retain the 'Reduction in Yield' figure,
currently used in Key Features documents, for the Simplified
Prospectus for funds marketed to UK customers. Recent market
research we conducted shows that consumers find RIY particularly helpful. However the RIY figure will not need to be included in Simplified Prospectuses for funds marketed cross-border to other countries in the European Economic Area. This should allay concerns UK firms may have in terms of European competitiveness."
The FSA will review the effectiveness of the UK UCITS disclosure regime in 2008 after the implementation of the new Key Facts regime for retail products. If, on conclusion of the review, the FSA finds that RIY is failing to act as an effective disclosure mechanism for UCITS, it will be withdrawn on 30 June 2009. This is backed with a 'sunset' provision that would automatically terminate RIY should the requisite Cost Benefit Analysis not support its retention.
The new rules and guidance are effective from 1 May 2005 with a transitional period until the end of September 2005.
