In 2007 a review of a sample of 200 KFDs and Simplified Prospectuses found that only 15% were likely to be effective, and 35% were ineffective because of a range of deficiencies.
The remaining 50%, although meeting the detail of the rules, were not readily understandable due to a mix of poor design, structure and content. They were therefore unlikely to meet the FSA’s Principles for Business.
The FSA challenged all firms to make significant improvements to these documents by the end of 2008.
In that time the regulator worked with firms and with trade associations to spread good practice and highlight areas for improvement.
In January and February 2009 the FSA re-assessed all the documents in the worst part of the original sample, and also a selection of others.
It found over two thirds of these have shown some significant improvements. The majority of the documents in the sample which did not make sufficient improvements are produced by asset managers.
Andrew Sykes, head of retail investments policy at the FSA, says:“We are pleased to report that, as a result of our work over the last year, and firms’ own efforts, we have seen a marked improvement in the quality of product disclosure. This proves that clear, effective documents can be produced as a helpful aid for consumers.
“The challenge for firms now will be to ensure that this is a sustained improvement and that the lessons from this exercise are applied across all communications.
“We will maintain our focus on the quality of disclosure and will take appropriate action to follow up with those firms that have not achieved the standards we expect. In particular we expect to have some tough conversations with some asset managers.”
Specifically the FSA will publish an update to the good and poor practice report next month. As an aid to firms it will provide more information on the findings and identify common themes and pitfalls, as well as some of the additional good practice examples;
Follow up with firms who produce KFDs and Simplified Prospectuses that are still not up to the standard expected and maintain its attention on the quality of product disclosure with a view to re-assessing another sample in 2010.