The FCA’s Consumer Composite Investments Regime – a new approach to retail investment disclosures will challenge the industry

Who this blog is for
 

This blog is relevant for CROs, CCOs and all staff involved in managing regulatory disclosures, compliance, marketing and risk management at fund management and distribution firms as well as life insurers selling insurance-based investment products.

At a glance
 

• Last December, the FCA consulted on the new product information framework for Consumer Composite Investments (CCI regime). This will replace the current rules under the Packaged Retail and Insurance-based Investment Products (PRIIPS), Undertakings for Collective Investment in Transferable Securities (UCITS), and non-UCITS retail schemes (NURS) regimes.
• The new regime aims to facilitate a simpler, less burdensome, and more flexible disclosures approach for firms. This will be a hybrid approach where specific core information and key metrics will be determined by prescriptive rules, but the overall design and delivery of disclosures will be guided by the Consumer Duty (the Duty).
• The overall proposals are more complex than the industry had expected and, if adopted in their current form, will require significant operational changes for manufacturers, increased information sharing across the distribution chain and the need for distributors to develop a communications and disclosures framework compliant with the Duty.
• The new CCI regime introduces specific obligations for information sharing between manufacturers and distributors. This is already an area of difficulty for the industry (e.g., in relation to the Duty), and the CCI proposals could result in greater difficulties. For example, the potential for different or misaligned information regarding the same product sold by different distributors.
• The new regime also introduces changes to prescribed technical metrics, leading to increased operational and compliance costs for manufacturers on implementation. More significantly, the shift towards a more principles-based approach, which places a heavier burden on distributors, will require firms to exercise greater judgment in how they present information to retail customers.
• Firms should consider the new CCI regime alongside other key regulations, including the Sustainable Disclosure Requirements (SDR), Targeted Support proposals, and the Duty. A holistic review will be essential to identify overlaps and ensure alignment to avoid duplication of efforts.
• The consultation closes on 20 March 2025, and the final Policy Statement will be published later in 2025. To facilitate a smooth transition, draft rules outlining transitional provisions will be released in a separate consultation in early 2025. Most in-scope firms will have a transition period of 18-months from the publication of the final rules later in 2025.

1.      What is being proposed?

Just before Christmas, the FCA published its much-anticipated consultation on the Consumer Composite Investments Regime (CCI). The CCI will replace disclosure requirements under the on-shored PRIIPS and UCITS regimes. The FCA’s objective is to create a simpler and more flexible regime that empowers consumers to make effective, timely and informed decisions and is fully aligned with the Duty.

Products in scope of CCI include open-ended funds, closed-ended funds, structured products, structured deposits, contracts for difference, insurance-based investment products, and other complex products such as derivatives. Note that this list is not exhaustive and as a first step firms should develop a process to determine whether existing or new products fall within the definition¹ of a CCI.

The new regime will apply to any firm that manufactures or distributes CCI products to retail investors in the UK including firms not authorised by the FCA e.g. EU firms that distribute CCIs in the UK under the Overseas Fund Regime (OFR). The FCA also plans to publish “Duty-equivalent” rules applicable to non-authorised firms that market CCI products into the UK. This may result in a significant burden for these EU firms as they will need to continue to comply with the existing PRIIPs and UCITS regimes in the EU and with the CCI and Duty‑equivalent rules for funds marketed in the UK. Additional expertise and resources will be required to ensure they can meet dual disclosure requirements.

There are several changes proposed to technical metrics (such as changes to the risk indicator, cost calculations and inclusion of a 10-year graph for past performance) and an increase in how much discretion firms will need to exercise in the design and delivery of disclosures. Firms will also need to work more closely with others in their distribution chain and consider the interaction of CCI disclosures with various other regulations. The consultation closes on 20 March 2025, with the new regime taking effect upon the publication of the final Policy Statement later in 2025. To ease this transition, the FCA will introduce a transitional implementation period, starting from the Policy Statement's publication date. Most firms will have 18 months to comply, while listed investment trusts currently subject to a PRIIPS exemption will have 12 months (see Figure 1 below).

Figure 1

2. A hybrid approach to disclosures: rules + Duty
 

The FCA expects the new regime to result in a simpler, less burdensome, and more flexible disclosures approach for firms. This will be a hybrid approach where specific core information and key metrics will be determined by prescriptive rules, but the overall design and delivery of disclosures will be guided by the Duty (see Figure 2).

Standardised rules will govern: the production of technical metrics (costs and charges, risk and reward and performance metrics), a Product Summary document and a machine-readable Core Information Disclosures document. The delivery of disclosures including narrative disclosures, templates, design, mediums and timing will be governed by the Duty rules and guidance.

Figure 2

3. What will change compared to current requirements? 

Table 1: Summary of proposed changes (source: CP 24/30)

We expect changes to technical metrics to result in increased operational and compliance costs to manufacturers (the FCA expects that over a 10-year period the proposed changes would cost manufacturers £48.8m – this does not include various ongoing costs which were unquantified in the Cost Benefit Analysis). Firms may also be exposed to significant regulatory and conduct risk due to having to exercise judgement around what contextual and qualitative information to include.

Key actions and considerations for firms

Firms will have to think carefully about how to convey complex technical information in simple language. It will be crucial for firms to consider the Duty’s consumer understanding requirements and guidance and apply the associated guidance around layering, relevance of information and using engaging language. They will also need to be able to evidence compliance with the Duty when implementing the new CCI regime. For example, key decisions about design and delivery of disclosures should be informed by outcomes monitoring.

For EU firms that manufacture funds distributed into the UK under the OFR, the proposals mean they will be subject to dual disclosure regulations. This may result in a significant compliance burden as they will need to continue to comply with the existing PRIIPs and UCITS regimes in the EU and with the CCI and Duty‑equivalent rules for funds marketed in the UK. Additional expertise and resources will be required to ensure they can meet dual disclosure requirements.

3.1 Information sharing and responsibilities across the distribution chain

As per Figure 3 below, the CCI requires manufacturers to produce a Product Summary alongside a Core Information Disclosures document and provide these to distributors. Distributors then have discretion to present the information in innovative ways to end-investors.

Figure 3

The FCA expects manufacturers and distributors to work closely together in sharing information. The new regime allows for a flexible approach to disclosures which means distributors may choose to provide their own product summaries or use innovative ways of presenting the core information (the substance of core information cannot be amended without consultation with the manufacturer). Such flexibility requires robust governance and controls to manage risk of errors and inconsistencies in disclosures and disputes between manufacturers and distributors. In reality, the industry has had long-standing difficulties with information sharing through the chain and, under the proposals, the level of information sharing and manipulation of shared information will increase materially, potentially exacerbating some of the difficulties.

Key actions and considerations for firms

Manufacturers will need to consider the implication of different distributors presenting core information and product summaries about the same product in different ways and whether this could lead to harm to retail investors.

Given that all distributors will receive a core information disclosure document with detailed information on the same funds, this will aid comparability between funds and potentially facilitate an improvement in fair value assessments. Both manufacturers and distributors should consider the impact of the new regime on their approach to fair value under the Duty.

Where technology is used to present core information in innovative ways e.g. where technical terms may have pop‑up explanations, distributors should ensure that any such additional text is aligned with the manufacturers’ original messaging. Distributors will need to ensure that any innovative design of disclosures is compliant with the Duty. This will be a significant task for many distributors given that they currently have no discretion to amend the format of disclosures. To ensure that disclosure design is Duty-compliant, firms will need to create frameworks which take into account not only the format, timing and mediums of communication that lead to good customer outcomes, but also the governance and oversight required and a consideration of the regulatory risks that the firm will face. It is interesting that the FCA did not carry out a cost benefit analysis for distributors, citing the fact that they are already subject to the Duty, even though under PRIIPS they only had to pass on the key information document produced by the manufacturer resulting in many distributors not having a disclosure strategy of their own. We believe that, under the current proposals, the cost for distributors to implement will in some cases be significant.

3.2 Changes to technical aspects of core information metrics

As per Table 1 above, various changes have been proposed to how the core information metrics are produced as compared to PRIIPs. A new baseline methodology has been proposed for costs, and the 1-7 risk scale has been expanded to a 1-10 risk-reward indicator.

Significant technical changes are likely to increase operational and compliance costs e.g. all products in scope will need to be re-assessed from a risk perspective and assigned a score between 1 – 10 on a risk/reward basis rather than solely on risk.

Key actions and considerations for firms

Firms will need to ensure they consistently give adequate information about how risk may affect reward for each specific product.

Where technical changes are concerned, a good first step for firms would be to assess which existing or new products might be in scope and do a gap analysis against the existing capabilities.

Firms should also engage early with any outsourced providers they use for large-scale reporting to ensure that they are aligned on the approach to CCI and prepared for the go-live date.

3.3 Inclusion of narratives in core information metrics

Under the proposals, manufacturers will be required to include narrative disclosures alongside their prescribed metrics disclosures and can voluntarily include contextual information to supplement the metrics. For example, the product summary should contain statements on the importance of costs and charges and explaining how costs affect product performance. Additional contextual information on costs can also be included and, although not mandatory, firms will still need to decide on the need for such additional disclosures. Manufacturers will also need to write concise risk descriptions of products alongside the risk and reward indicator, which describe the factors that could affect the risk and reward profile of the product and its performance. The CCI requires distributors to consider how to make these descriptions more engaging and increase consumer understanding of risk.

Key actions and considerations for firms

Firms will need to determine what additional information to provide and how to approach these narratives. The technical information will need to be conveyed in a manner that is simple, engaging and informative. In the absence of a template, firms will need to create a framework around how disclosures should be designed, how much detail should be included and what terminology is most appropriate.  Firms will need to use the Duty’s guidance around layering information, considering the information’s relevance, and ensuring it is engaging to the target market.

4. Interaction with the Duty, SDR and Advice Guidance Boundary Review

The CCI proposals are more complex than the industry had been expecting. Although a more flexible approach will be welcome, such flexibility brings risks as the design and delivery of CCI disclosures will need to meet Duty standards and will require firms to apply judgement to their decision-making.

In addition, there are other regulatory initiatives that interact with the CCI proposals and firms should consider them carefully as part of their CCI implementation. These related initiatives include:

• Duty developments: the FCA has issued many publications that build the body of FCA’s Duty expectations beyond the Duty rules and guidance. We expect this to continue into 2025 and these developments are likely to be key in informing firms’ approach to implementing the CCI disclosures, once finalised.
• SDR: the FCA has suggested that manufacturers could include some general sustainability information from SDR disclosures in the product summary². Check out our latest insights on SDR here.
• A new Targeted Support model: the FCA published its consultation on Targeted Support for the pensions sector in December 2024, highlighting that the model will work along broadly similar lines for retail investments. Rules are expected towards mid-2025. Check out our latest insights on the Advice Guidance Boundary Review.

Key actions and considerations for firms

Firms should start by considering how the CCI proposals will align with their existing Duty frameworks for delivering good outcomes, particularly on Price & Value, and Customer Understanding.

In relation to SDR, firms should consider specifically which sustainability information should be taken from SDR disclosures to include in CCI disclosures. A holistic approach will be required for the disclosures.

Firms that plan on using the new Targeted Support advice model should also pro-actively consider what disclosures they might use to support it, and how this might align with CCI disclosures.

Conclusion

The CCI disclosure proposals are more complex than the industry had been expecting. The proposed changes under the new regime will affect both manufacturers and distributors and present firms with a chance to revamp their retail communications strategy. However, there is a significant risk that the increased flexibility and lack of detailed rules on templates, the timing, and medium of disclosures will create an increase in supervisory challenge post-implementation and scrutiny of retail investment disclosures. The increase in information flows through the distribution chain in the shape of the Core Information Disclosures machine-readable document could also result in increased scrutiny of fair value assessments as well as the need to ensure the information is comparable and consistent across the market.

Although 18 months to transition to the new regime from the date it comes into force seems reasonably generous, firms need to consider it in light of the size of the task ahead at a time when they will also have to prepare to implement other connected regulatory change initiatives. Firms will need to consider strategically how to plan their regulatory change and what elements of the proposals they want to push back on.

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References

¹ “CCIs are broadly products where the returns that may be received by the investor are dependent on the performance of indirect investments (meaning underlying or reference assets).” FCA’s CP24/30 para 3.2.

² FCA’ CP24/30 paragraphs 2.38 and 2.39