UK Retail Disclosure Reform: FCA Consults on New Consumer Composite Investments’ framework

While we have been following replacement of the UK PRIIPs regime with a new UK-specific regime for Consumer Composite Investments (CCIs) in our blog for a while, the Financial Conduct Authority (FCA) published their consultation paper on the new product information framework on December 19, 2024. The consultation is open until March 20, 2025, with final rules anticipated to be implemented later in 2025, followed by an 18-month transition period.

Background

During its onshoring, the UK PRIIPs regime, which includes key information documents for packaged retail and insurance-based investment products (PRIIPs), has been kept in tight correspondence to its EU parent and has sticked to adherence to strict content and format criteria. The regime has faced criticism for being often confusing or overwhelming, thus limiting effective decision-making.

Consequently, in December 2022, the UK Government announced plans to repeal and replace it with a more consumer-friendly disclosure regime following consultations on PRIIPs and UK Retail Disclosure. Product information documents will still need to be handed over to retail investors but the CCI regime will replace the PRIIPs KIDs and UCITs KIIDs with a “Product Summary”.

Product scope and disclosure guidance

The FCA plans to keep the product scope largely unchanged. Instruments like structured deposits, structured products, derivatives, IBIPs, open- and closed-ended funds and Contracts for Difference (CFDs) will remain in the regulated scope. That said, the CCI Regulations will allow the FCA to exclude specific debt securities if needed.

A rule proposes to lower the minimum investment amounts of a PRIIPs which are not “made available” to retail investors from £100,000 to £50,000, in order to better reflect the maximum denomination of products that are meant for retail investors. This will result in products with denomination of £50,000 or more that are not directly targeting retail clients , to be considered as non-CCIs. The FCA will keep all the existing rules about which PRIIPs are regulated. They also intend to clarify, based on market feedback, that having a “make whole” call option clause in a debt security won’t automatically make it fall under these regulations if it wasn’t already included.

Manufacturers and Distributors

The regime will apply to any product manufacturer or distributor that distributes a CCI to retail investors in the UK.

To allow distributors to tailor information to meet specific investor needs and present a product in an engaging way, the FCA proposes that the CCI benefits from less prescriptive format requirements than the KID. Both product manufacturers and distributors are expected to collaborate and split the process of product disclosure.

From “KID” to “product summary”

The FCA doesn’t provide a specific template or design. The summary should be made as engaging and understandable as possible, consumer-friendly, technology neutral. It should include details like the product’s goals, costs, risks, performance and options for redress.

Key proposals are replicated in the table below, as summarized by the FCA :

Transition period

• The CCI regime will come into force when the FCA’s Policy Statement is published. It foresees an 18-month transition period, which means that CCI disclosures will most likely be required fully starting from 2027.
• Firms can switch to the new regime as soon as they are ready until the end of the transition period.
• Existing PRIIPs KIDs and UCITS KIIDs will remain compliant until the end of the transition period.
• The transition period allows firms to follow either the new CCI rules or the old PRIIPs/UCITS rules.
• UCITS funds are exempt from PRIIPs disclosure until the end of 2026. After that, they must follow CCI rules.
• The British Treasury has excluded investment companies currently exempt from PRIIPs requirements. These companies have a 12-month transition period.
• Draft rules for transitional provisions will be published in early 2025.

We will monitor these developments and provide updates as needed to keep you informed. We are carefully evaluating all requirements in relation to CCIs, such that we can prepare and offer a matching CCI disclosure compliance as part of our portfolio of services.

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