Another Step Towards a UK PRIIPs Replacement

The UK Government has provided details to UK PRIIPs replacement. There will be yet another acronym: the Consumer Composite Investments (CCIs) framework. CCIs are the new PRIIPs. The UK Government has given power to the FCA to make rules in relation to disclosure on these. For what these might look like, insights can be gained from the December 2022 FCA Discussion Paper – the short point is that disclosure will be "less" and more "targeted". But for global firms with EU and UK presence this means inevitable operational complexity in ensuring the same product set has two different disclosure regimes (something firms are perhaps now resigned to).

If you are an overseas firms wishing to communication / distribute a CCI to a UK retail person / entity you need to pay attention to these new rules.

Legislative Background

This was laid out in a draft version of astatutory instrument, the Consumer Composite Investments (Designated Activities) Regulations 2024 and an accompanyingpolicy note. This follows a July 2023 consultation paper (see our briefinghere) and a December 2022 discussion paper (see our briefinghere) in which the Government set out plans to delete UK PRIIPs and replace it with an overarching legislative framework containing FCA firm-facing retail disclosure requirements as part of the UK Smarter Regulatory Framework. A December 2022 FCA Discussion Paper (DP22/6) provided an indication of how retail disclosures could be delivered and presented, as well as content requirements. HMT has powers under the Designated Activities Regime (see our briefinghere) to bring activities into scope of regulation and give the FCA powers.

Key Points

• The new regime provides that manufacturing, advising and offering a CCI to a UK retail investor are designated activities and therefore requires firms (regardless of their authorisation status) to provide disclosure to UK retail investors.
• The FCA will be given powers to make and enforce rules in respect of these designated activities.
• For the purposes of the regime, CCI is an investment, or an insurance product, other than excluded products, where the amount repayable is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor.
• There are the old ideas of manufacturing and a concept of "offering" that captures communications
  • “Manufacturing a consumer composite investment” involves: creating, developing, designing, issuing, managing, operating, carrying out, or underwriting a consumer composite investment; or making changes to a term, condition, or feature of a consumer composite investment.
  • “提供消费者组合投资”意味着communicating sufficient information on the consumer composite investment to be offered, and the terms on which it is offered, to enable the person to decide to buy the consumer composite investment and includes selling a consumer composite investment.
• UCITS (which are currently exempted from producing a PRIIPs KID) will be brought into scope of the new regime eventually, but the current transition period in respect of funds currently providing UCITS KIID will continue until 31 December 2026. Funds may elect to transition to the new disclosure requirements from the date that the FCA rules come into effect. All funds (including those covered by the Overseas Funds Regime) will be subject to FCA rules under the CCI framework.
• FCA rule-making powers in relation to all persons engaged in providing CCIs to UK retail investors will extend to both domestic and overseas unauthorised firms.
• UK disclosure requirements will apply to all funds marketing to UK retail investors including UK authorised funds and recognised overseas funds.
• The regime simplifies certain definitions have been simplified to align with UK domestic law and/or to provide greater clarity for firms (e.g. retail investor).
• Civil liability is applicable to any firm carrying out a designated activity (as opposed to just manufacturers).
• The Government intends to repeal related legislative amendments in MIFID alongside the replacement of the PRIIPs Regulation e.g. Articles 50 and 51 of the MiFID Org Regulation (a separate SI revoking the relevant provisions is to be issued).
• The FCA is expected to publish a consultation on draft rules to replace the PRIIPs Regulation and certain MiFID provisions on cost disclosure in the near future.
• The Government will create a SI regulating common areas of designated activities that will contain cross-cutting provisions in relation to enforcement and supervision.