HMG publishes law to replace PRIIPs with a UK retail disclosure regime

One aspect of the Chancellor’s Autumn Statement that didn’t receive a huge amount of attention in the media was the announcement of the replacement of the UK PRIIPs regime.

On 22 November 2023, draft legislation was published to replace the UK PRIIPs regime (created by onshoring the EU PRIIPs Regulation into UK legislation before Brexit) with a new UK retail disclosure framework. This publication followed HM Treasury’s response on 11 July 2023 to its consultation paper “PRIIPs and UK Retail Disclosure” (see our article on this here).

The publication consists of:

• a draft statutory instrument (SI) and
• an accompanying policy note.

The draft SI contains rules for a new retail disclosure framework for Consumer Composite Investments (CCIs).

The Government is inviting technical comments on the draft SI by 10 January 2024.

What is the Government planning to do?

The Government intends to replace the UK PRIIPs regime with an overarching legislative framework, with detailed disclosure requirements replaced with rules set by the FCA.

The UK PRIIPs regime sits outside the core FSMA 2000 authorisation regime, so the FCA has no rule-making powers in respect of retail disclosure for unauthorised firms. As a result, the draft SI provides the FCA with rule-making powers in relation to “all persons engaged in providing Consumer Composite Investments to UK retail investors” – this will cover both domestic and overseas unauthorised firms.

So that consumers can make informed investment decisions, new disclosure requirements will apply to all funds marketing to UK retail investors, including UK authorised funds and recognised overseas funds.

What changes will this bring about?

Among other things, the new rules would:

• Define designated activities requiring disclosure to retail investors.
  The scope of the new framework will be established by defining designated activities which will require firms to provide disclosure to UK retail investors. This will be done using the Designated Activities Regime introduced in FSMA 2023.

  In line with the UK PRIIPs regime, the designated activities will include manufacturing, advising and offering a CCI to a UK retail investor. Any firm engaged in any of these activities will be in scope of the FCA rules, whether the firm is authorised or not.

• Keep the same categories of products in scope. The CCI regime will apply to those products currently within the UK PRIIPs regime.

• Create more flexible disclosure obligations than under the UK PRIIPs regime. Specific disclosure requirements set out in new FCA rules will be “more flexible and proportionate” than the PRIIPs requirements.

  There will no longer be detailed provisions relating to the formatting and contents of Key Information Documents. Further, the FCA will be able to reform cost disclosures under the CCI regime, replacing the current detailed methodologies for calculating cost, risk and performance.

• Bring UK and EU UCITS in scope. Both UK UCITS and EU UCITS will be in scope, with the framework applying to all funds marketed to UK retail investors (including UK authorised funds and recognised overseas funds).

  A transition period will match the existing exemption for funds currently providing UCITS KIIDs, which is scheduled to end on 31 December 2026. These funds may choose to transition to the new disclosure requirements once the CCI regime comes into effect, but by 1 January 2027 all
  funds (including those in scope of the Overseas Funds Regime) will be required to comply with the CCI regime disclosure requirements.

What are the perceived benefits?

The Government envisages that the FCA’s new rules for retail disclosure will be more flexible and proportionate for firms, thereby addressing concerns with the EU-inherited PRIIPs Regulation.

What happens next?

Technical comments on the draft SI are to be submitted to HM Treasury by 10 January 2024.

HM Treasury intends to bring forward the legislation in 2024, subject to Parliamentary time. The CCI regime will replace the UK PRIIPs regime at the same time as the FCA introduces its new rules.

Supervision and enforcement provisions for the CCI regime will be set out in a separate SI. This is expected to be published early next year and will apply to the wider Designated Activities Regime.

The FCA will in due course:

• publish a consultation on their draft rules to replace the PRIIPs Regulation and certain MiFID provisions related to cost disclosure; and
• consider interim solutions to mitigate the impacts on the investment company sector in the short term, as the government acts to implement a long-term legislative solution to the issue.