The Association of Investment Companies (AIC), which represents investment trusts, has urged the Financial Conduct Authority (FCA) to warn investors about the risks inherent in the Kid Documents.
The European Parliament decided on Monday (December 3) to suspend the implementation of the Packaged Retail Insurance and Investment Products (Priips) rules relating to Key Investor Documents (Kids) for unit trusts to 2021 amid concerns the rules were flawed and could lead to consumer detriment.
It did not suspend the rules for investment trusts, which have been subjected to the framework from the start of this year. The rules were due to take effect for unit trusts from 2019.
But the AIC said the European Parliament’s decision did not go far enough and left investors in investment trusts "out in the cold".
Ian Sayers, chief executive of the AIC, said: "The expected delay to KIDs for UCITS funds is welcome but leaves investors in non-UCITS funds out in the cold. Recent EU proposals to reform KIDs do not address their fundamental failings and will either do no good or make matters worse. Investors now face being misled by KIDs for years to come.
"As the EU appears unwilling or unable to protect non-UCITS investors, the FCA should take the lead and warn investors not to rely on these documents. It should ensure that the misleading information in KIDs does not pollute other areas of the market, for example by prohibiting it from being used in financial promotions and in search filters on websites."
Andrew Bailey, chief executive of the FCA, has previously said he was "concerned" about the Priips rules and promised to act on the issue.
A representative of the FCA said: "PRIIPs is a directly-binding EU regulation that seeks to standardise and improve the disclosure of important information for consumers. We are aware of concerns regarding the implementation of the Key Information Document and have issued a call for input, seeking views on industry and consumer experience of using it in practice.
"The call for input closed on 28 September 2018 and we will publish our feedback statement early in 2019. We will use the responses to inform our ongoing dialogue with the European Supervisory Authorities and any appropriate action we can take at a national level."
As FTAdviser has previously reported, the requirement for asset manager’s to include projections of future performance has been described as a "potential future mis-selling scandal".
The concerns of many in the market are that the methodology which funds must use to calculate future performance is based too heavily on past performance, and given that equity markets have performed extremely well for most of the past decade, will create a false hope among investors about the likely return from funds.
Simon Fraser, who chairs the Merchants investment trust and the F&C investment trust, said: "Throughout my career I have been told that I cannot say ‘past performance is a guide to future returns, and that’s fair enough. But now seemingly I have to say that it is."
