UK Announces Final Reforms to Financial Services Retail Disclosure Requirements

Post Brexit, the U.K. Government and Financial Conduct Authority are committed to the ongoing reform programme to reinvigorate the U.K.'s capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to U.K. markets and firms, and removing the legal uncertainties that arose from the EU Packaged Retail and Insurance-Based Investment Products Regulation, particularly as to the scope of instruments captured. HM Treasury and the FCA have announced final plans to reform U.K. retail disclosure rules. HM Treasury plans to replace the EU-inherited PRIIPs Regulation with a new framework for Consumer Composite Investments (CCIs). HM Treasury aims to lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.

HM Treasury will also lay legislation to exempt listed investment trusts from the current PRIIPs Regulation, as well as make other necessary amendments to other EU-assimilated law. In light of this announcement, and industry concerns about the application of the current retail disclosure framework, the FCA will immediately apply new forbearance to provide certainty for firms ahead of this legislation taking effect. From September 19, 2024 until the legislation to amend the PRIIPs Regulation for investment trusts comes into force, the FCA will not take supervisory or enforcement action if an investment trust chooses not to follow the requirements of the PRIIPs Regulation and associated requirements. This is an interim measure, pending longer term reform.

Despite this forbearance, the FCA states that it cannot repeal or disapply the law and the regulations remain in force during this period; as such, firms may need to consider any other implications that not complying with the legislation may have for their businesses. Firms are also reminded that they must still continue to comply with other relevant rules and regulations. This includes the Consumer Duty and Principle 7, which requires firms to ensure communications are fair, clear, and not misleading. Firms also need to comply with the requirements in COBS 2.1.1R to act honestly, fairly, and professionally in accordance with the best interests of clients. The FCA can act if firms do not meet these expectations.

The FCA expects HMT to lay the new legislation on the additional powers required to deliver the new CCI regime and at the same time lay the legislation to exempt closed-ended U.K.-listed investment funds in H2 2024. The FCA's regulatory forbearance will end on the date that the legislation relating to the exemption takes effect. The U.K.'s new retail disclosure regime is expected to be in place in H1 2025, subject to Parliamentary approval and the FCA consultation process. The FCA intends to consult on proposed rules for the CCI regime this autumn, with the aim of finalizing the rules in H1 2025, at which point firms will be able to begin transitioning to the new regime.

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