CCIs are the new PRIIPs – FCA consults on new retail disclosure rules

The transition to a new UK retail disclosure regime continues with the FCA's Consultation on a New Product Information Framework for Consumer Composite Investments, published as an early Christmas present on 19 December 2024. This follows earlier consultations trailing the new CCI regime and is the latest step in replacing the much-maligned UK PRIIPs regime.

Key points are: 

• the scope remains broadly aligned with the current PRIIPs regime, but the FCA is proposing a reduction of the "made available" threshold, from £100,000 to £50,000;
• the restrictive current PRIIPs format and template requirements will give way to a more flexible approach, allowing firms to present information in the most investor-friendly way;
• firms will also have more flexibility in their description of costs: for example, there will be a single, aggregated ongoing costs percentage for CCIs, with a more granular breakdown of costs if necessary;
• the risk scale remains, but as a more flexible 1-10 scale based on product volatility, with the riskiest products (including structured products, CFDs and derivatives) being allocated at least a 9;
• past performance is to be illustrated through a 10-year performance graph;
• responsibility will be split between manufacturer and distributor: the manufacturer will be broadly responsible for content and the distributor will be broadly responsible for presentation, but they will need to collaborate to ensure investor needs are met;
• the new rules are expected to take effect in Q2 or Q3 2025, at which point the current PRIIPs regime will be revoked (but with transitional relief, as described below); and
• the rules will have an 18-month transition period, during which time firms may choose to comply either with the old PRIIPs rules or the new CCI rules.

The FCA's aim in overhauling the UK's retail disclosure rules is to move from an "overly prescriptive" regime to one which allows for a simpler, more flexible approach that prioritises good consumer outcomes. The clear theme running through the consultation is that retail product disclosure must be as easy to understand and as investor-friendly as possible. It must be accurate and robust, but also tailored to specific investors where necessary. 

In practice, there are few substantive changes, and these are largely limited to differences in terminology and changes to the way in which product disclosure is presented – for example, a PRIIP becomes a consumer composite product (CCI) and a new "product summary" replaces the PRIIPs Key Information Document. Prescriptive templates are being replaced with holistic investor analysis to produce bespoke disclosure solutions. 

The biggest impact for international firms will be the need to follow two distinct regimes and produce two different disclosure documents for UK and EU retail offerings of PRIIPs, as the UK and EU disclosure regimes diverge. Some may find this unhelpful at a time of major market flux and regulatory divergence across multiple regimes. There is a view that a more appropriate change could have been to remove the requirement for a CCI at all in more circumstances.

The consultation closes on 20 March 2025 and the new rules are expected to take effect later in 2025. Once in force, the rules will supplement the Consumer Composite Investments (Designated Activities) Regulations 2024 (CCI Regulations), which were made in November 2024 and will enter into force when the UK PRIIPs Regulation is revoked.

Background

The UK PRIIPs Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs) was onshored from the EU on 31 December 2020. It imposes disclosure obligations on manufacturers and distributors of certain types of securities made available to retail investors in the UK, including the provision of a Key Information Document, or KID. 

Under the UK PRIIPs regime, KIDs must meet strict content and format criteria. The regime has been criticised for being overly prescriptive and giving rise to potentially misleading investor disclosure, so much so that, in December 2022, the UK Government announced the regime's future repeal and replacement with a more consumer-friendly disclosure regime. 

The current consultation proposes changes to the Product Disclosure sourcebook and asks for market feedback in several areas, as described below. The FCA has summarised the key proposals in a table, which we have replicated in Annex 1.

Product scope

The FCA is proposing to keep product scope largely as is, encompassing structured deposits, structured products, derivatives, contingent convertible securities, and contracts for difference. Therefore, products such as CFDs remain in scope and there are limited de-scoping opportunities.

However, the draft rules do propose specific exclusions and "neutral" factors, which would not, per se, take a product in or out of scope of the regime. Most of the exclusions are the same as under the PRIIPs regime, but there is a helpful new catch-all in the CCI Regulations, under which the FCA can also exclude specific debt securities.

Reduction in "made available" threshold

Helpfully, the FCA is proposing to formalise existing product disclosure guidance around when a PRIIP is not "made available" to retail investors, but with a reduced minimum investment of £50,000 (down from £100,000). The FCA considers that this more accurately represents the maximum denomination of a product intended for the retail market. 

Existing guidance continues

All the existing PRIIPs scope clarifications will continue to apply to the new regime. In addition, in response to market feedback the FCA is proposing to formally clarify that "make whole" call option clauses would not, per se, bring an otherwise out-of-scope debt security within scope. 

Entity scope

The consultation also suggests retaining the current entity scope. The following will all be designated activities and will require the relevant person to provide disclosure under the new rules, regardless of their authorisation status and whether they are in or outside the UK:

• manufacturing a CCI which is made available to a retail investor in the UK;
• advising a UK retail investor on a CCI; and
• offering a CCI to a retail investor located in the UK.

"KID" becomes "product summary"

The FCA wants each CCI that is or can be distributed to a retail investor to be accompanied by a product summary, which will replace the current KID but with less prescriptive format requirements. 

The proposed rules conceptually split the process of product disclosure into:

1. the provision of key information about the product, which is the responsibility of the manufacturer; and
2. the design and presentation of that information in the most appropriate way, which is the responsibility of the distributor.

Both the manufacturer and distributor will be expected to collaborate to make sure the information provided is accurate, clear, fair and not misleading.

The investor should receive either the product summary or the information within it as early as possible prior to distribution, except in certain limited circumstances. There is no further guidance that defines distribution (for example, within an execution only model where a client has continued access to live prices on a platform).

Role of manufacturer and distributor 

The new regime emphasises the difference in the roles and responsibilities of manufacturers and distributors. The role of each is illustrated in flow charts, which are replicated in Annex 2. Broadly, the manufacturer will be responsible for producing accurate content and the distributor for presenting that content in the most appropriate way.

Manufacturers will need to provide a product summary and related underlying core information to the distributor "in good time" before product distribution. The distributor will then be able to (i) use the manufacturer's product summary for its own disclosure, (ii) create its own, more tailored, product summary for investors, or (iii) use a combination of both. In this way, distributors will have flexibility to tailor their disclosure to specific clients, based on investors' particular requirements. Distributors are encouraged to present the information in the "most interactive or engaging way". The intention is to move away from "tick-box" disclosure and present product information in the most effective way possible for each investor.

Distributors will only be able to advise on or sell a CCI for which a product summary is available.

Product summary and underlying core information

The product summary will need to disclose, in a stand-alone, concise, consumer-friendly format, information relating to (among other things) the product's investment objectives, any redress options, costs and charges, risk, and performance. The FCA is not proposing a template, or mandating the design or layout as is the case under the PRIIPs regime. Instead, it has suggested standards that firms should meet when preparing their product summaries - for example, information about costs and risk must be prominent. This is because they do not want to limit firms' ability to make the layout as engaging and as easy to understand as possible.

Manufacturers also need to provide distributors with underlying core information on the product, to help them understand the product and assess whether the manufacturer's product summary meets investor needs. It needs to be in a machine-readable file but, again, the FCA is not mandating a prescribed format.

Manufacturers will need to update the product summary and core underlying information every 12 months while the CCI continues to be distributed, and flag any material changes to distributors.

Distributors will also need to provide the product summary in a "durable medium" (for example, by email) at the point of sale, or very soon afterwards. 

Information about costs

The consultation proposes that manufacturers provide a single, aggregated ongoing costs percentage for CCIs. A more granular breakdown of costs can also be provided if this would help facilitate consumer understanding, but the aggregate figure must be more prominent than the breakdown. 

The types of costs and charges that need to be disclosed remain unchanged, but the FCA wants costs and charges presented in a particular way:

• the product summary should contain statements emphasising the importance of costs and charges, with a clear explanation of their impact on the potential growth of the CCI, and which costs are estimated;
• the product summary must also explain that the person selling or advising on the CCI may charge other costs and fees and, where relevant, cross refer to the CCI’s prospectus for more detailed information;
• the product summary can include additional explanations, contextual information or costs breakdowns that would help investor understanding; and
• comparability is key – manufacturers will need to follow a standardised methodology for calculating costs, following a baseline cost methodology for all products and "top-up" considerations for certain product types.

Transaction costs are included in the methodology, but the FCA plans to consult further on this in 2025. 

Information about risk

The PRIIPs summary risk indicator is one of the more controversial elements of the PRIIPs regime, being considered overly rigid and not fit for purpose. The FCA is proposing to retain a similar, standardised risk and reward metric, but to base this on volatility measured on the standard deviation of returns.

The risk score will be presented on a horizontal linear scale of 1 to 10, and firms will also need to provide a concise, easy to understand written description of the risks. The FCA thinks that moving from a 1-7 to a 1-10 scale will reduce "bunching" and promote a more granular risk differentiation. This may create additional work for firms.

The FCA describes how they expect the determination of the risk score to work for specific product types, including derivatives, CFDs, and structured products:

• derivatives and CFDs should automatically be assigned at least a 9 on the risk scale, as they are considered high risk;
• similarly, unprotected structured products are inherently risky and should be at least a 9, with a label to highlight their complexity; and
• capital-guaranteed structured products, being less risky, should initially be scored according to the underlying asset class(es), but the manufacturer should then consider whether the score needs adjusting to appropriately convey the risk level.

For any structured product, the manufacturer will need to describe the product's risk features, including the conditions under which potential losses will be realised. Where relevant, structured products manufacturers and distributors should also provide alternative, industry standard measures of risk, such as Value-at-Risk, to support the description of the risk and reward profile. However, this must not be given prominence over or detract from the prescribed risk metrics discussed above.

Information about past performance

The FCA wants all products with relevant past performance data to illustrate this in a standardised graph covering a 10-year period (or a shorter period if that is all that is available), based on set parameters and presented in a way that is reasonably comparable with similar products. Many market participants will find this requirement particularly unhelpful.

For products that do not have past performance data, such as structured products and derivatives, manufacturers should provide a narrative explanation of the factors that are likely to produce negative or positive performance, and other factors that may impact their risk and returns.

Transitional provisions

In the consultation, the FCA notes that some firms will need to change product information for a very large number of products, and may also need to make consequential changes to their systems and/or procedures. It is therefore proposing an 18-month transitional period, during which in-scope firms can choose whether to follow the PRIIPs regime or the CCI regime. Existing PRIIPs disclosures will continue to be acceptable until the end of the 18-month period. The FCA plans to consult on the transitional provisions early in 2025.

Next steps

The consultation closes on 20 March 2025 and the final rules are expected to take effect later in 2025, with an 18-month transition period. 

We will monitor developments and provide updates as necessary.

Annex I

 

Annex II

Role of manufacturers 

Role of distributors