FCA PRIIPs rule changes fully in effect and Treasury consults on wider overhaul

Rule changes made by the Financial Conduct Authority on packaged retail investment and insurance-based products (PRIIPs) came fully into effect in December 2022¹. In the same month, HM Treasury consulted on a wider overhaul of the PRIIPs regulation, saying it placed inflexible requirements on product providers through the key information document (KID) which itself could provide investors with confusing information, and that it dissuaded firms from offering some products to retail investors in the UK due to compliance costs¹. The Treasury also proposed giving the FCA responsibility for designing new disclosure rules¹.

PRIIPs are investments sold to retail investors (non-professional investors) whose value fluctuates based on the performance of assets which the investor does not directly own, and are also called composite investments¹. Providers must publish product information in a KID, which includes the product's management fees, risk profile and future performance scenarios calculated under a standard methodology¹. The regime stems from EU regulations in force since 2018, which the UK adopted as an EU member¹. A quarter of UK adults hold a type of composite investment, according to the FCA's Financial Lives survey¹.

The FCA's December 2022 rules followed changes made through the Financial Services Act 2021, under which the FCA received powers to define PRIIPs, the requirement for KIDs to contain "performance scenarios" was changed to "information on performance", and the exemption for UCITS was extended to December 2026¹. The Treasury had set out in July 2020 that it would amend "only the most pressing concerns with the PRIIPs Regulation"¹.

The KID has been controversial since its introduction. Investment firms claimed the methodology for calculating future scenarios overstated likely future gains, and EU regulators acknowledged it required certain PRIIPs to report positive returns even in unfavourable future scenarios¹. The Financial Times reported that one PRIIP linked to natural gas prices was reporting returns of more than 523 billion percent under a favourable scenario¹. The EU made changes in 2021 to how performance scenarios and costs were calculated¹.

Why it matters for households

The rules govern the document a retail investor receives before buying a fund or similar product, and what that document must contain. The December 2022 changes altered the requirement so that KIDs carry "information on performance" rather than "performance scenarios"¹. The UCITS exemption, which had allowed UCITS sold in the EU to be sold without a KID, ended in January 2023¹; UCITS account for 75% of collective investments made by small investors in Europe, according to the European Commission¹. In November 2024 the government passed secondary legislation to exempt investment companies from reporting costs associated with their shares, after critics argued the KID required such companies to double count their costs¹.

What happens next

The Financial Services and Markets Act 2023 provided for the repeal of the PRIIPs regulation in the UK¹. The Consumer Composite Investments (Designated Activities) Regulations 2024 tasked the FCA with designing a new regime covering all PRIIPs, renamed consumer composite investments, including UCITS¹. The FCA opened its consultation on CCI disclosure requirements in December 2024 and intends to publish final rules in 2025¹. The existing PRIIPs regulations will continue to apply until the new CCI rules are in place¹. In the EU, the European Commission published proposals to amend the PRIIPs regulation in 2023 following a wider review, which were still being considered by the European Parliament and the Council of the EU at the time of writing¹.