Consumer Composite Investments (Designated Activities) Regulations 2024 enter into force

On 22 November 2024, Treasury’s new rules granting the FCA powers to construct and deliver a new retail disclosure framework for Consumer Composite Investments (“CCIs”), which will replace the UK PRIIPs regime and will be tailored for the UK market, entered into force.

Importantly these new rules:

• specify the manufacturing, advising, offering and/or selling of a CCI to a UK retail investor as activities subject to the designated activities regime; 
• provide the FCA with rule-making powers;
• restate FCA supervisory and enforcement powers on product intervention and suspension; and
• retain the transition period for UCITS KIIDs, and also UK UCITS / NURS funds and EU UCITS funds that have been recognised in the UK

From the date of revocation of the PRIIPs Regulation under FSMA 2023, the rules also:

• set civil liability for pre-contractual disclosures, and
• replace assimilated law relating to PRIIPs

So what is a CCI?

The final regulations slightly tweak the definition of CCIs as compared to the draft rules.  The new definition covers investments or contracts of insurance (or any rights or interests in them) “where the value or amount payable to the investor 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 investor.” This still broadly follows the definition of a PRIIP in the UK PRIIPs Regulation. 

The list of excluded products too broadly follows the list of excluded products in the UK PRIIPs Regulation (noting that “a contract of general insurance” is no longer in the list of excluded products under the CCI Regulations). 

Who is subject to the regime?

The rules apply to manufacturers of CCIs and firms advising on, offering or selling CCIs (regardless of whether they are FCA regulated or not) (akin to the PRIIPs regime).

Similar to the wording in the draft regulations, the definition of manufacturer is broader than the market interpretation of “manufacturing” in the PRIIPs context as it includes firms that are “creating, developing, designing, issuing, managing, operating or carrying out” a CCI, and also includes firms that are “making changes to a term, condition, or feature of” a CCI.

Closed ended investment trusts

The new legislation also excludes closed-ended investment companies from the assimilated PRIIPs regulatory framework and modifies the application of relevant disclosure requirements under MiFID. as such the FCA's September 2024 forbearance statement for such companies now ceases to exist.   The FCA's forthcoming consultation will shed light on the rules which will apply to such firms.  The FCA say “The proposed new regime is intended to better cater for a variety of products and investment vehicles, including closed-ended UK-listed investment funds, while still ensuring consumers receive appropriate information to allow them to make informed choices about CCI investment opportunities.” therefore the consultation process will allow the CCI regime to be “proportionate” and address concerns that have been raised related to closed-ended UK-listed investment funds.

Timing

Whilst this is not explicitly stated, from a statement made in September 2024, it appears to still be the expectation that final rules will be in place in H1 2025 albeit whether this timing is met will depend upon the FCA's consultation process.  

As consulted upon, the transition period for UK UCITs, UK Non-UCITs retail schemes, and EEA UCITs recognised under the TMPR, OFR or s272 expires on 31 December 2026. 

What’s next?

For clarity on the detailed rules for CCI disclosures, we will have to wait until the FCA publish their consultation on their proposals.  That is expected “this autumn” according to the FCA, but we haven’t had any communication on the exact timing for its publication.   

You can find Treasury’s final CCI Regulations here