Legal development

Edinburgh Reforms update: Another Step Towards a UK PRIIPs Replacement… and more

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    The UK Government has provided details to UK PRIIPs replacement. There will be yet another acronym: the Consumer Composite Investments (CCIs) framework. CCIs are the new PRIIPs. The UK Government has given power to the FCA to make rules in relation to disclosure on these. For what these might look like, insights can be gained from the December 2022 FCA Discussion Paper – the short point is that disclosure will be "less" and more "targeted". But for global firms with EU and UK presence this means inevitable operational complexity in ensuring the same product set has two different disclosure regimes (something firms are perhaps now resigned to).

    If you are an overseas firms wishing to communication / distribute a CCI to a UK retail person / entity you need to pay attention to these new rules.

    Legislative Background

    This was laid out in a draft version of a statutory instrument, the Consumer Composite Investments (Designated Activities) Regulations 2024 and an accompanying policy note. This follows a July 2023 consultation paper (see our briefing here) and a December 2022 discussion paper (see our briefing here) in which the Government set out plans to delete UK PRIIPs and replace it with an overarching legislative framework containing FCA firm-facing retail disclosure requirements as part of the UK Smarter Regulatory Framework. A December 2022 FCA Discussion Paper (DP22/6) provided an indication of how retail disclosures could be delivered and presented, as well as content requirements. HMT has powers under the Designated Activities Regime (see our briefing here) to bring activities into scope of regulation and give the FCA powers. The Government confirmed next steps in the 2023 Autumn Statement delivered by Chancellor of the Exchequer, Jeremy Hunt.

    Key Points

    • The new regime provides that manufacturing, advising and offering a CCI to a UK retail investor are designated activities and therefore requires firms (regardless of their authorisation status) to provide disclosure to UK retail investors.
    • The FCA will be given powers to make and enforce rules in respect of these designated activities.
    • For the purposes of the regime, CCI is an investment, or an insurance product, other than excluded products, where the amount repayable 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 retail investor.
    • There are the old ideas of manufacturing and a concept of "offering" that captures communications
      • “Manufacturing a consumer composite investment” involves: creating, developing, designing, issuing, managing, operating, carrying out, or underwriting a consumer composite investment; or making changes to a term, condition, or feature of a consumer composite investment.
      • “Offering a consumer composite investment” means communicating sufficient information on the consumer composite investment to be offered, and the terms on which it is offered, to enable the person to decide to buy the consumer composite investment and includes selling a consumer composite investment.
    • UCITS (which are currently exempted from producing a PRIIPs KID) will be brought into scope of the new regime eventually, but the current transition period in respect of funds currently providing UCITS KIID will continue until 31 December 2026. Funds may elect to transition to the new disclosure requirements from the date that the FCA rules come into effect. All funds (including those covered by the Overseas Funds Regime) will be subject to FCA rules under the CCI framework.
    • FCA rule-making powers in relation to all persons engaged in providing CCIs to UK retail investors will extend to both domestic and overseas unauthorised firms.
    • UK disclosure requirements will apply to all funds marketing to UK retail investors including UK authorised funds and recognised overseas funds.
    • The regime simplifies certain definitions have been simplified to align with UK domestic law and/or to provide greater clarity for firms (e.g. retail investor).
    • Civil liability is applicable to any firm carrying out a designated activity (as opposed to just manufacturers).
    • The Government intends to repeal related legislative amendments in MIFID alongside the replacement of the PRIIPs Regulation e.g. Articles 50 and 51 of the MiFID Org Regulation (a separate SI revoking the relevant provisions is to be issued).
    • The FCA is expected to publish a consultation on draft rules to replace the PRIIPs Regulation and certain MiFID provisions on cost disclosure in the near future.
    • The Government will create a SI regulating common areas of designated activities that will contain cross-cutting provisions in relation to enforcement and supervision.

    UK Short Selling regime

    The Government has also issued a number of publications to implement changes to UK Short Selling Regulation (UK SSR):

    These were outlined in the Government's July 2023 response to its call for evidence on the UK SSR and its July 2023 consultation on the regime for sovereign debt and credit default swaps under the UK SSR. In its response, the Government confirmed that most firm-facing requirements previously set out in legislation would be replaced by FCA rules. 

    Changes to the UK SSR made as a result of these publications include:

    • introducing a designated activity of short selling of shares (and related instruments), setting out definitions of key terms  (e.g. a short sale) and giving the FCA rulemaking powers to expand on these definitions in more detail where required;
    • enabling the FCA to exempt shares from requirements and requiring the FCA to publish a list of shares to which certain rules apply (in response to industry feedback that a positive list of in scope shares is better than the current "negative" list of exempt shares);
    • requiring the FCA to aggregate and publish net short positions received by issuer;
    • emergency intervention powers for the FCA to require additional short selling-related information and to restrict short selling in exceptional circumstances; 
    • providing the FCA with a rulemaking power to exempt market making activities and stabilisations from certain short selling requirements; 
    • requiring the FCA to publish aggregated net short positions based on individual position notifications it receives (under the current regime, the FCA publishes individual net short positions above 0.5% of issued share capital); and 
    • increasing the notification threshold for the reporting of net short positions to the FCA from 0.1% to 0.2% of total issued share capital under Article 5(2) of the UK SSR (the requirement to report increases of 0.1% of issued share capital above this initial notification threshold remains the same).

    The deadline for comments on the draft Short Selling Regulations 2024 is 10 January 2024. The Short Selling (Notification Threshold) Regulations 2023 come into force in 5 February 2024.

    Other updates

    The Autumn Statement also provided an update on other areas covered in the Edinburgh Reforms:

    • Investment Research Review: Responses to recommendations contained in the Kent Report (see briefing here for more details) are being considered in preparation for formal consultations in 2024.
    • Data Reporting Services Regulation: The Government is to introduce a statutory instrument that will replace retained EU law in relation to Data Reporting Services Providers. This includes a framework for a UK consolidated tape.
    • Payments: The Government welcomes the publication of the Future of Payments Review and will repeal payment authentication rules. It plans to introduce legislation in relation to Open Banking in 2024, as well as publish the National Payments Vision.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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