The CCI shift
Preparing for a post-PRIIPs world
Authors:
François-Kim Hugé: Partner, Investment Management, Deloitte Luxembourg
Tobias Degünther: Director, Investment Management, Deloitte Luxembourg
Performance Magazine Issue 47 - Article 1
To the point
The UK Financial Conduct Authority's new Consumer Composite Investment (CCI) framework presents a shift from the PRIIPs regime, offering flexibility and focusing on consumer-centric communication. While the transition poses challenges, it opens opportunities to strengthen investor trust and operational efficiency. CCI centers the consumer experience by:
- Replacing rigid documents with tailored "product summaries," that facilitate clarity, investor-friendly information, and alignment with Consumer Duty standards;
- Adding key changes that include a revamped risk scale, cost representation, and performance history; and
- Requiring asset managers to collaborate closely with distributors for improved communication and shared strategies.
Introduction
The UK Financial Conduct Authority (FCA) published its highly anticipated consultation paper titled, “A new product information framework for Consumer Composite Investments,” on 19 December 2024, marking the replacement of the UK Packaged Retail and Insurance-based Investment Products (PRIIPs) regime. This significant development puts forward a more flexible and proportionate product information framework that will apply to firms manufacturing or distributing consumer composite investments (CCIs) to retail investors in the UK. This provides a unique opportunity to upgrade communication capabilities.
Key difference between PRIIPs and CCI:
The CCI regime replaces PRIIPs key information documents (KIDs) and UCITS key investor information documents (KIIDs) with a “product summary” that must be provided to consumers.
Compared to the rigid PRIIPs KIDs, the new CCI document allows asset managers more flexibility within its holistic, investor-friendly presentation of information. Asset managers are not only able to tailor documents to each product, but they can also implement distributor-specific requests within the design and layout.
While some metrics are standardized for comparison, they will differ from PRIIPs. This is how:
Table 1: Summary of proposed changes
|
PRIIPs |
CCI |
Document & Format |
The key information document (KID) under PRIIPs is provided at the point of sale and must comply with standard format/template consisting of three sides of A4 pages.
|
Provided earlier in the consumer journey, firms are free to design their product’s key information document as they see fit. However, if a product is purchased, firms must ensure that the content is made available in a variety of enduring formats.
|
Cost information |
Information on any costs incurred within the PRIIP, whether indirect or direct, are stated. This includes those that are one-off or recurring. A reduction in yield table illustrates the cumulative effect of costs over time. It must convey a single percentage and monetary value for three distinct holding periods. |
Performance fees and interest implications must be clarified using clear narrative explanations and examples. The information previously captured in reduction in yield table will be covered in a summary of costs over a 12-month period. Firms have more flexibility in how they present costs, and their potential impact on returns, to their clients.
|
Risk information |
Uses a scale ranging from 1-7 based on credit and market risk as defined by the Cornish Fischer expansion. This information is presented separately from performance data. |
Uses a scale that has been expanded to a range of 1-10, based on product volatility. There is freedom to adapt risk indicators around key risks or product features like capital guarantee, for example. Comprehensive overview of risk vs. reward helps consumers better understand product features and their significance. |
Performance information
|
Information on key factors that could impact product performance (whether positive or negative) must be detailed in addition to their potential effect on returns. |
When available, a retrospective graph will illustrate performance over the past ten years, providing consumers with the critical contextual information they need. |
Source: Financial Conduct Authority, Consultation Paper CP 24/30: A new product information for Consumer Composite Investments, December 2024, p.9
CCI: Implications for asset managers
The shift to CCI certainly requires a fundamental shift in mindset. Asset managers must move beyond formulaic disclosures and embrace principles of clarity and consumer focus. This requires making sure that communication strategies are aligned with the Financial Conduct Authority’s broader Consumer Duty regulation, which aims to ensure that all information is clear, fair, not misleading, and empowers consumers to make informed decisions.
As usual, this change presents both challenges and opportunities. While aligning communication strategies with the Consumer Duty will require a robust understanding and implementation of its standards, it also has the potential to create more demand, as investors feel increasingly confident in their understanding of various products.
Gains to be made from the CCI regime
For asset managers willing to embrace this new paradigm, the potential for stronger investor trust and enhanced operational efficiency is significant. Firms can build more meaningful connections with their client base as they move beyond formulaic disclosures and focus on clear and relevant information that adds value.
To make the most of these regulatory shifts, asset managers should focus on the following:
- Prioritize clarity above all: The emphasis on consumer understanding demands a thorough review of how product information is conveyed. Jargon and overly technical language must give way to clear, concise explanations that are easily understood by the average investor.
- Embrace the flexibility: While the principles-based approach might initially feel less defined, it offers the potential to tailor communication to different investor segments and product types. This opens doors to collaborate with your marketing and report production teams to create a customized experience from start to finish.
- Invest in knowledge and training: This shift prioritizes customer experience and comprehension. Thus, ensuring that teams understand the nuances of the Consumer Duty and the specific requirements of the CCI regime is paramount. This could imply dedicated workshops, training, and upskilling initiatives.
- Seek collaborative solutions: Engaging with distributors and seeking subject matter expertise can provide valuable insights into best practices for the new regime’s implementation as well as understanding the distributors’ expectations of tailor-made reports.
Conclusion
In conclusion, the UK's CCI regime represents a significant move in the regulatory landscape for retail investment disclosures. While it presents notable challenges, it also uncovers a compelling opportunity to enhance communication, build stronger investor relationships, and ultimately, thrive. By embracing the principles of clarity and consumer focus, asset managers can navigate these changes and position themselves for long-term success in a post-PRIIPs world.
