FCA consults on further proposals for Consumer Composite Investments

The Financial Conduct Authority (FCA) has released Consultation Paper (CP) CP25/9, which outlines further proposals on product information for Consumer Composite Investments (CCIs). The aim is to enhance transparency and consumer understanding while allowing firms flexibility in their communications.

As promised in the first CP24/30 (see our article on that here: FCA consults on new CCI disclosure rules to replace UK PRIIPs regime | Simmons & Simmons), the second CP contains draft rules relating to

• amendments to the transaction costs methodology;

• consequential changes to other Handbook materials; and

• draft transitional provisions.

Next steps

The FCA invites feedback on the proposals by 28 May 2025. A Policy Statement with final rules is expected in late 2025.

The FCA will respond to this CP and CP24/30 together in a single Policy Statement.

Respondents can amend their responses to CP24/30 in light of this second CP if they wish to do so.

Simmons & Simmons will be re-engaging with the trade associations that we supported on CP24/30 on this second CP and also with our clients generally. Whilst this second CP has been generally well-received, there are still open points to be made, including advocating for a longer transitional period, for example.

Feedback from CP24/30

Whilst this CP does not respond to feedback received to CP24/30, it does state that feedback the FCA has received focussed on "aspects of costs and charges disclosure, the balance of responsibilities between manufacturers and distributors, and the best ways to achieve flexibility, innovation and enhanced consumer engagement".

This fits with what we saw during the response period to CP24/30 where we held the pen on both the UK Structured Products Association (UKSPA) and Association for Financial Markets in Europe (AFME) responses. We also spoke to the Investment Association and several members of the funds industry on this point.

The FCA has also indicated that, in the upcoming Policy Statement, it will adjust the timelines proposed in CP24/30 so that the regime comes into force for all firms at the same time (as it stands the transitional period is only 12 months for investment trusts) - this was another point advocated for in response to CP24/30 across the industry.

Proposed changes

Transaction Costs

The FCA proposes removing the requirement for firms to calculate and disclose implicit transaction costs (i.e. using the slippage methodology), focusing instead on explicit costs like broker fees, exchanges fees and stamp duty. They propose that explicit transaction costs should be disclosed as described in CP24/30; that is, disclosed separately from other ongoing costs and also included in the summary cost figure.

The removal of implicit costs is a big win for the industry, who have advocated for the removal of the misleading slippage costs methodology for several years now.

This removes a significant compliance burden for firms and should also provide clearer disclosure for consumers (the use of the slippage costs methodology was often misleading, sometimes resulting in negative transaction costs).

Whilst this is good news, we would continue to advocate that folding transaction costs into an aggregate "ongoing charge" would be misleading and that there is merit in this being identified as a separate charge.

Cost disclosure alignment

The FCA intends to align the cost disclosure rules in Articles 50 and 51 of the Markets in Financial Instruments Directive (MiFID) Organisational Regulation with the CCI proposals, to avoid duplication and ensure consistency. They are proposing a rewrite of the Article 50 requirements, and a deletion of the transferred (i.e. Handbook version of) Article 51. The new Handbook articles will include a provision setting out that the types of CCI product costs and charges required to be aggregated for MiFID pre- and post-sale disclosure are the same as those required to be disclosed in the CCI product summary.

Whilst overall this is another positive outcome, in our view there are still changes that we would like to see to these proposals. In particular, it would be preferable to remove the summary illustration that combines one-off costs, ongoing costs and transaction costs.

Transitional provisions

The FCA sets out draft transitional provisions which will allow firms the flexibility to move to the new rules as soon as they are ready during the transitional period (which, for the moment, is staying as 18 months). Firms that opt to produce a product summary during the transitional period will only need to comply with the rules in DISC that apply to the content of the product summary (not the rules around core information disclosures, for example).

The FCA clarify that, because of the current UCITS exemption and the timing, UCITS and NURS manufacturers will not need to transition from providing a KIID to a PRIIPs KID at any point.

During the transitional period, distributors will be responsible for ensuring that the document prepared by the manufacturer (whether it be a KID or a product summary) is presented to a retail investor sufficiently early before the point of sale to allow the investor enough time to consider it. The proposed requirements under DISC to allow distributors the option to produce their own product summary will not be in force during the transitional period. The financial promotions rules in COBS 4 would only apply to product summaries during the transitional period (not other disclosure documents).

For new CCIs, manufacturers are not required to prepare either a KID or a product summary for the first 12 months of the transitional period. After that, in the next 6 months of the transitional period, they must produce a product summary or whichever disclosure document they would have had to produce under the old regime (i.e. a PRIIPs KID if the product would have been a PRIIP).

Feedback from clients is that 18 months is a short transition period. This is especially true for firms that produce KIDs and KIIDs themselves and where the CCI regime will involve a large amount of systems building. We expect respondents to the CP will be advocating for a longer transition period.

Complaints handling

The FCA sets out proposed rules in DISC under which unauthorised manufacturers in scope of the CCI regime will be required to implement basic complaints handling procedures to ensure fair and prompt resolution of consumer complaints. This is to cater for the lack of investor access to the Financial Ombudsman Service (FOS) as these manufacturers do not fall within its compulsory jurisdiction.

In response to CP24/30, several industry groups already fed back concerns to the FCA about the imposition of basic product governance requirements on unauthorised manufacturers and the potential consequence of these manufacturers exiting the UK retail market - these concerns seem to have gone unheeded so far.

Consequential amendments

The FCA sets out consequential amendments to the FCA Handbook that result from the replacement of the previous regimes with new CCI rules (i.e. cross references etc.). These include: disapplying the COBS rules on past performance to product summaries (a question around the interaction of these rules was asked by industry in response to CP24/30), excluding authorised contractual schemes (ACS) and qualified investor schemes (QIS) from the requirements for CCIs and a new rule in DISC requiring firms to file a copy of the product summary of each UCITS scheme and NURS with the FCA (as currently required under COLL 4.7.7).

The draft instrument also revokes certain EU Level 3 PRIIPs guidance:

1. The Joint ESA supervisory statement concerning the performance scenarios in the PRIIPs KID' (published 8 February 2019);

2. The PRIIPs - Flow diagram for the risk and reward calculations in the PRIIPs KID (published 16 August 2017); and

3. The Questions and Answers on the PRIIPs KID (published 20 November 2017).

Draft rules

We have noted a few additional amendments to the draft rules not covered in the first part of the CP which we think are worth noting:

1. An amendment to DISC 1A.2.4R(1)(b) - clarifying that a fixed coupon rate, including a stepped coupon, is not a feature that causes a debt security to become a CCI (this was advocated for by industry in response to CP24/30);

2. A new rule DISC 2A.3.6R stating that a firm may provide a product summary to "a person who is legally empowered (solely or jointly with others) to make investment decisions on behalf of the retail investor" and satisfy its obligations. By this we assume they mean a power of attorney (we already have an existing rule like this under the PRIIPs regime but this seems to be more flexibly drafted) rather than  discretionary investment managers, as this would go against established market practice. We will seek to clarify this in industry responses to the CP; and

3. A new rule in DISC 2A.3.7R stating that a firm only needs to provide a product summary once in respect of the initial transaction in the case of regular or repeated investments in the same CCI (we already have an existing rule like this under the PRIIPs regime but this seems to be more flexibly drafted).