The FCA's Consultation Paper 24/30 (CP24/30) proposes a new product information framework for Consumer Composite Investments (CCIs) in the UK. They feel that this initiative represents a significant step towards improving the way consumers access and understand information about complex investment products. By prioritising clarity, conciseness, and flexibility, the FCA aims to create a more consumer-centric investment market where individuals can make well-informed decisions.
This consultation paper aims to enhance consumer understanding of complex investment products by replacing the existing, often confusing, system with a more flexible and user-friendly approach.
Key Points
- Consumer Composite Investments: These are investments where the returns depend on the performance of indirect investments. This includes a wide range of products like funds, structured products, and derivatives.
- Current Issues: The FCA believes that the current product information documents are often confusing and overwhelming for consumers.
- Goals of the New Framework: The FCA aims to create a more flexible and simpler approach to product information. This would empower consumers to make well-informed decisions while allowing firms to innovate.
- Key Proposals: The FCA proposes to replace the existing Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements with a new domestic regime to be delivered by the FCA.
- Focus on Consumer Outcomes: The new framework emphasizes good consumer outcomes and aims to make it easier for consumers to compare investments.
- Next Steps: The FCA is seeking feedback on its proposals and will publish a further consultation with draft rules in early 2025.
In essence, the CP24/30 consultation paper is a significant step towards revamping how investment products are presented to consumers. The FCA aims to create a more transparent and user-friendly system that empowers individuals to make informed investment decisions.
Current Challenges
The FCA recognizes that the current disclosure regime, largely stemming from EU legislation, often overwhelms consumers with complex and lengthy documents. This "tick-box" approach fails to effectively engage consumers and may not provide the key information needed for informed decision-making.
Proposed Changes:
CP24/30 proposes a shift towards a more flexible framework that prioritizes good consumer outcomes. Key changes include:
- Simplified Information: Moving away from overly prescriptive disclosures to concise and relevant information tailored to consumer needs.
- Focus on Key Metrics: Standardizing the presentation of core information, such as costs and charges, risk, and performance, to facilitate comparison across products.
- Enhanced Risk Communication: Introducing a standardized risk and reward metric, likely on a 1-10 scale, to provide a clearer picture of potential risks and returns.
- Greater Flexibility for Firms: Allowing firms to innovate and adapt their communication strategies to better engage with consumers.
- Alignment with Consumer Duty: Integrating the new framework with the Consumer Duty, emphasizing the responsibility of firms to deliver good outcomes for their customers.
Impact and Objectives:
The FCA hopes that these changes will:
- Empower Consumers: Enable consumers to make more informed investment decisions by providing clear and accessible information.
- Increase Engagement: Encourage consumers to actively engage with product information and use it in their decision-making process.
- Promote Innovation: Allow firms to develop more effective ways of communicating with consumers, fostering innovation in the investment market.
- Improve Trust: Enhance trust in the investment market by ensuring that consumers have access to the information they need to make sound decisions.
Next Steps
The consultation period for CP24/30 is open until March 20, 2025. The FCA encourages feedback from consumers, firms, and other stakeholders. Following the consultation, the FCA plans to publish a further consultation with draft rules and then issue a policy statement with final rules in 2025.
The author, Vince Harvey, has worked in financial services for many years and has been running his
compliance consultancy for more than a decade. His specialist areas within the Compliance Alliance
are investment advice and management.
You can contact him on 07890311875 or at vince@compliancecubed.co.uk