The UK regulator has updated its thoughts about investments where the returns are linked to the performance of underlying, indirect investments, such as funds or structured products. This article explains the significance. New rules aim to give clearer information to retail investors about the risks and potential returns.

Late in 2024, the UK’s Financial Conduct Authority consulted the industry about a framework for types of investment structures, departing from approaches used in the European Union. Consumer Composite Investments are investments where the returns are linked to the performance of underlying, indirect investments, such as funds or structured products. 

At issue is how the UK follows its own regulatory path without creating undue frictions with an important economic neighbour such as the EU. To discuss developments is Lewis Davison, senior product manager, at Confluence a US-headquartered technology solutions firm with offices in several countries, including the UK. The editors at this news service are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Investment firms in the UK find themselves at a regulatory crossroads. In December, the FCA published a consultation on the Consumer Composite Investments (CCI) framework, marking a significant departure from the previous EU-based PRIIPs (1) and UCITS regime.

Despite being broadly supported, specific provisions within the framework have been under intense industry scrutiny, leading the regulator to launch an additional consultation just a month after the first had closed.

Second consultation 
On 16 April, The FCA released its follow-up consultation paper (CP25/9). This seeks to address specific elements of the upcoming CCI framework. This consultation will remain open until 28 May 2025.

The FCA expects to publish the final rules via a policy statement in late 2025. This suggests an approximate application date between Q2 and Q3 2027 for most firms, and between Q4 2026 and Q1 2027 for closed-ended listed investment companies – assuming that there are no further changes to the transition period.

This second consultation addresses some key concerns and introduces some simplifications – but what challenges must be addressed to ensure stakeholders’ needs are met? 

Elimination of implicit transaction costs
The major development in this consultation is the FCA's proposal to remove requirements for calculating and disclosing implicit transaction costs through the “slippage” methodology. This represents a game-changing update for firms within scope, introducing much-needed pragmatism to retail disclosure requirements.

The regulator has acknowledged the difficulties with implicit “slippage” costs. Their imprecision and the difficulty in measuring them accurately, particularly as market movements largely fall outside firms' control, are a major industry challenge.  

The FCA has shifted towards simplification, recognising that explicit costs are more straightforward to quantify and supportive of decision-making. 

Under the new proposals, explicit costs would be disclosed as a separate line item from other ongoing charges (consistent with CP24/30 proposals) and should reflect a 36-month average where data is available or be estimated using a 'reasonable basis’ methodology.

MiFID organisational regulation streamlining 
The consultation also addresses amendments to the MiFID Organisational Regulation, primarily designed to eliminate overlaps with the incoming CCI ruleset. The hope is to create a more streamlined approach. 

Ultimately, CCI product costs and charges required for aggregation in MiFID pre- and post-sale disclosures should mirror those required in the CCI product summary.

The FCA has suggested deleting Article 51 of the MiFID Org Reg, considering it unnecessary in relation to the other proposed changes.

Implementation timeframes
In terms of transition periods, the FCA has not immediately altered the primary implementation timeframes. Instead, they are currently evaluating feedback from the initial consultation.

As industry players have previously highlighted, the limited 12-month transition period for investment companies creates an awkward inconsistency compared with all other CCI product categories. This needs to be addressed to create a single transition period.

The regulator has, however, made clear its intention to retain an option for early adoption of the CCI regime before the transition period ends. This would be a ‘lite’ application of the rules, focusing on the product summary only, mainly the machine-readable data. Transmission requirements between manufacturers and distributors would not apply during this early adoption phase.

Direct CCI pathway established for UCITS
The FCA has also confirmed that UCITS will transition directly to CCI rules, bypassing any requirement to produce a PRIIPs KID. This will likely resolve potential timing complications, given that the final Policy Statement is now anticipated after June 2025.  The 18-month transition window would therefore extend beyond the UCITS exemption from PRIIPs (which expires end-2026).

While a lot of the consultation addresses administrative aspects of the FCA handbook, it does clarify that master UCITS will not need to produce product summaries to their feeder UCITS. Additionally, both Authorised Contractual Schemes (ACS) and Qualified Investor Schemes (QIS) will fall outside the scope of the regime.

Industry simplications and forward outlook
Overall, the second CCI consultation represents a positive development from the regulator, particularly regarding the elimination of implicit cost calculation requirements. This will undoubtedly provide welcome relief for in-scope organisations.

As the second consultation period continues, industry stakeholders will continue to monitor updates. Many remain hopeful that a fairer, streamlined regulatory landscape is round the corner.    

Footnote

1, PRIPPs means “Packaged Retail and Insurance-based Investment Products.”