On 19 December 2024, the Financial Conduct Authority (FCA) published Consultation Paper 24/30 ‘A new product information framework for Consumer Composite Investments’ (CP24/30).

Background

The FCA is consulting on a new product information regime to help consumers understand the products they are buying while giving firms flexibility to innovate. This follows HM Treasury’s commitment to replace the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements with a domestic regime to be delivered by the FCA. The Government made the legislation to give this effect on 21 November 2024. The legislation is The Consumer Composite Investments (Designated Activities) Regulations 2024. The Regulations replace assimilated law in relation to the UK PRIIPs Regulation and UCITS disclosures, establishing a new legislative framework for the regulation of Consumer Composite Investments (CCIs).

Scope

Under the FCA’s proposed rules, a CCI is an investment where the returns are dependent on the performance of or changes in the value of indirect investments.

The proposed rules clarify this general definition, and also set out a number of explicit inclusions. Products included are:

  • A structured deposit.
  • A security which embeds a derivative or includes features equivalent to a derivative contract.
  • A debt security with certain features.
  • A security issued by a fund, or rights to or interests in such a security.
  • A security issued by a closed-ended investment fund.
  • A contingent convertible security.
  • A contract for difference.
  • An insurance-based investment product.

The regime will apply to any firm that manufactures or distributes a CCI to retail investors in the UK. Not all persons or entities who carry out a CCI-designated activity will be an authorised person; however, the FCA is empowered to make rules that also apply to non-authorised persons in relation to their CCI activities.

Proposed rules

The FCA proposes to deliver the CCI regime through a hybrid approach utilising both distributors’ obligations under the Consumer Duty and standardised rules where appropriate:

  • Standardised rules:
    • Changes to calculation and display of costs and charges, risk, and performance
    • “Made available” threshold reduced to £50,000 from £100,000
    • Manufacturers required to publish machine-readable disclosure information
  • Consumer Duty and limited high-level rules:
    • Governs design and delivery of disclosures

Disclosures will consist of three core metrics: costs and charges, risk, and performance (see further below), alongside key general information on the product. The FCA will create prescriptive rules for the calculation of these metrics and rely mostly on the Consumer Duty for the design and delivery of disclosures. The regulator is conducting testing of these core metrics to understand their impact on comprehension during the consultation period. In addition, it proposes to reduce the threshold for products being “made available” to retail investors to £50,000 and require manufacturers to make their disclosure information machine-readable.

In terms of costs and charges the FCA proposes:

  • To provide prescriptive and standardised costs and charges methodologies to manufacturers across all markets which can be amended dependant on the idiosyncratic characteristics of some product types. This is intended to allow meaningful comparison across products while acknowledging cases where it is not appropriate.
  • That manufacturers aggregate recurring costs, to ensure costs are presented in a simple format consumers can understand and use to make decisions.
  • That costs and charges information is presented prominently to retail investors.

As for risk the FCA proposes to:

  • Change the initial calculation of risk score by manufacturers to a methodology based on standard deviations and presented on a linear 1-10 scale, aligned with the UCITS Synthetic Risk and Reward Indicator (SRRI).
  • Implement a minimum risk score for certain high-risk products and products of unknown volatility, and to include a narrative identification of key risks.
  • Ensure that risk score is prominently displayed.

For performance, the FCA proposes:

  • That where possible, manufacturers provide past performance of products graphically and a narrative description of the key factors that determine the performance of a product as part of a risk and reward narrative.

Next steps

The deadline for comments on CP24/30 is 20 March 2025.

The FCA plans to issue a Policy Statement with final rules in 2025.