FCA Introduces Reforms for Retail Investment: Wealthy Clients Can Opt-Out

The UK's Financial Conduct Authority (FCA) has unveiled significant reforms to enhance retail investment participation, replacing the European Union's PRIIPs disclosure rules with a new Consumer Composite Investments (CCI) framework. The FCA allows wealthy clients to opt out of consumer protections, aiming to reshape retail markets post-Brexit.

Key Takeaways

The FCA has announced reforms to increase retail investment access in the UK.
The reforms eliminate the EU's PRIIPs disclosure requirements.
A new framework called Consumer Composite Investments (CCI) will take effect in June 2027.
Wealthy clients with at least £10 million in cash can opt out of consumer duty safeguards.
Revisions to client classifications will differentiate between retail and professional investors.

FCA replaces EU PRIIPs with UK Consumer Composite Investments

Changes to UK Retail Investment Rules

The recent reforms are part of an effort by the FCA to make stocks and shares more accessible for individual investors, while still upholding consumer protection measures. This is a notable moment for UK retail investment, says Jonathan Lipkin, Director of Policy, Strategy, and Innovation at the Investment Association. He emphasized that this change marks a pivotal shift in the post-Brexit landscape, allowing a clearer definition of future retail investment policies.

The FCA has decided to do away with the EU’s Packaged Retail and Insurance-based Investment Products (PRIIPs) disclosure rules. Instead, it will introduce the Consumer Composite Investments (CCI) framework, which will apply to investment funds, investment trusts, and unit-linked life insurance policies. The FCA estimates that around 12.5 million adults in the UK hold products that will now fall under the CCI framework. Since last year, the FCA has been consulting on these reforms, which aim to simplify cost disclosures and clarify the relationship between risk and reward, with the new rules set to take effect in June 2027.

Additionally, the FCA revealed updates to client classifications to differentiate between retail and professional investors. Those classified as professional clients will no longer be subject to the FCA’s consumer duty, which mandates stricter care standards. While the threshold for professional status remains rigorous, individuals who possess at least £10 million ($13.3 million) in cash can now choose to opt out of certain consumer protection measures. The FCA is also removing the previous "quantitative" testing criteria, which involved active trading benchmarks such as executing a minimum of ten trades per quarter, due to concerns about potential misuse.