The Consumer Composite Investments (Designated Activities) Regulations 2024

PART 1 Introductory

Citation and extent

1.—(1) These Regulations may be cited as the Consumer Composite Investments (Designated Activities) Regulations 2024.

(2) These Regulations extend to England and Wales, Scotland and Northern Ireland.

Commencement

2.—(1) The following provisions come into force on the day after that on which these Regulations are made—

(a) this Part,

(b) Part 2 (designated activities and FCA powers), and

(c) the remaining provisions, for the purposes only of enabling the FCA to—

(i) make rules,

(ii) give directions or guidance, or

(iii) issue statements of policy.

(2) So far as not already in force by virtue of paragraph (1), these Regulations come into force on the day on which the revocation of the PRIIPs Regulation(1) by section 1(1) of, and Schedule 1 to, the Financial Services and Markets Act 2023 comes into force (“main commencement day”).

Interpretation

3.—(1) In these Regulations—

“2017 Regulations” means the Packaged Retail and Insurance-based Investment Products Regulations 2017(2);

“buying” includes acquiring for valuable consideration;

“consumer composite investment” has the meaning given in regulation 4;

“FSMA 2000” means the Financial Services and Markets Act 2000;

“main commencement day” has the meaning given in regulation 2(2);

“markets in financial instruments regulation” means Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012(3);

“PRIIPs Regulation” means Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products(4);

“retail investor” means a person, other than a professional client (as defined in Article 2(1)(8) of the markets in financial instruments regulation(5)), who is using, or is or may be contemplating using, any of the services provided by a person in the course of carrying on an activity specified in regulation 5.

(2) In these Regulations, references to rules made by the FCA are to those rules as they have effect from time to time.

“Consumer composite investment”

4.—(1) Subject to paragraph (2), “ consumer composite investment” means—

(a) an investment,

(b) a contract of insurance, or

(c) any right to or interest in anything listed in sub-paragraphs (a) or (b),

where the value or amount payable to the investor 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 investor.

(2) The following are excluded from the definition of consumer composite investment—

(a) a contract of long-term insurance where the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity;

(b) deposits other than structured deposits (as defined in Article 2(1)(23) of the markets in financial instruments regulation(6));

(c) non-equity transferable securities issued by—

(i) the government of any country or territory,

(ii) a local or regional authority of any country or territory,

(iii) any public international body of which the United Kingdom or any other State is a member, or

(iv) the European Central Bank or the central bank of any State;

(d) non-equity transferable securities issued in at least two separate issues of a similar type or class over a 12-month period by credit institutions provided that these securities—

(i) are not subordinated, convertible or exchangeable,

(ii) do not give a right to subscribe for or acquire other types of securities,

(iii) are not linked to a derivative instrument,

(iv) materialise reception of repayable deposits, and

(v) are covered by the compensation scheme (within the meaning of section 213(2) of FSMA 2000(7)) or by a similar scheme in a country or territory outside the United Kingdom;

(e) non-equity transferable securities issued in at least two separate issues of a similar type or class over a 12-month period by credit institutions where the total consideration for the offers within that period in the United Kingdom is less than £64 million, or an equivalent amount, provided that those securities—

(i) are not subordinated, convertible or exchangeable,

(ii) do not give a right to subscribe for or acquire other types of securities, and

(iii) are not linked to a derivative instrument;

(f) non-fungible shares of capital whose main purpose is to provide the holder with a right to occupy any immovable property or a part thereof and where the shares cannot be sold without this right being given up;

(g) occupational pension schemes;

(h) personal pension schemes;

(i) shares in the capital of any central bank;

(j) debt securities specified by the FCA in designated activity rules(8) made by virtue of regulation 6;

(k) stakeholder pension schemes;

(l) transferable securities unconditionally and irrevocably guaranteed by the government or a local or regional authority of any country or territory;

(m) transferable securities issued by associations with legal status or non-profit-making bodies recognised by any country or territory with a view to their obtaining the funds necessary to achieve their non-profit-making objectives.

(3) In this regulation—

(a) “contract of insurance”, “contract of long-term insurance”, “occupational pension scheme”, “personal pension scheme” and “stakeholder pension scheme” have the meanings given in article 3 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001(9);

(b) “credit institution” has the meaning given in section 417 of FSMA 2000(10);

(c) “debt securities”, “non-equity transferable securities”, “securities” and “transferable securities” have the meanings given in section 102A of FSMA 2000(11);

(d) “deposit” has the meaning given in Article 2(1)(23A) of the markets in financial instruments regulation(12);

(e) “equivalent amount” means an amount of equal value denominated wholly or partly in another currency or unit of account which is to be calculated by reference to the exchange rates prevailing at the time of issue.

PART 2 Designated Activities and FCA Powers

Activities specified as designated activities for the purposes of FSMA 2000

5.—(1) The following activities are specified under section 71K of FSMA 2000 as designated activities for the purposes of that Act—

(a) manufacturing a consumer composite investment which is, or is proposed to be, made available to a retail investor located in the United Kingdom;

(b) advising on a consumer composite investment if the advice is given to—

(i) a retail investor located in the United Kingdom, or

(ii) an agent for that investor;

(c) offering a consumer composite investment to a retail investor located in the United Kingdom;

(d) selling a consumer composite investment to a retail investor located in the United Kingdom.

(2) In this regulation—

(a) “advising on a consumer composite investment” means giving advice on the merits of—

(i) buying, selling, subscribing for, exchanging, holding or redeeming a consumer composite investment,

(ii) exercising, or not exercising, any right conferred by a consumer composite investment to buy, sell, subscribe for, exchange or redeem a consumer composite investment, or

(iii) entering into an agreement relating to a consumer composite investment;

(b) “made available” has the meaning given in designated activity rules made by virtue of regulation 6;

(c) “manufacturing a consumer composite investment” means—

(i) creating, developing, designing, issuing, managing, operating or carrying out a consumer composite investment, or

(ii) making changes to a term, condition or feature of a consumer composite investment;

(d) “offering a consumer composite investment” means communicating sufficient information on—

(i) the consumer composite investment, and

(ii) the terms on which it is offered,

to enable a person to decide to buy, subscribe for or enter into an agreement relating to the consumer composite investment;

(e) “selling a consumer composite investment” includes disposing of the consumer composite investment for valuable consideration, and for these purposes “disposing” includes—

(i) in the case of a consumer composite investment consisting of rights under a contract—

(aa) surrendering, assigning or converting those rights, or

(bb) assuming the corresponding liabilities under the contract,

(ii) in the case of a consumer composite investment consisting of rights under other arrangements, assuming the corresponding liabilities under the arrangements, and

(iii) in the case of any other consumer composite investment, granting the rights or interests of which it consists.

FCA rules

6.—(1) The FCA may make designated activity rules relating to the activities specified in regulation 5.

(2) The FCA may by notice suspend any rules made by virtue of paragraph (1) for such period as it considers appropriate.

(3) Rules made by virtue of paragraph (1) may include provision enabling requirements imposed by the rules to be dispensed with, or modified, in such cases or circumstances as may be determined by the FCA under the rules.

(4) The FCA may publish any decision made by virtue of paragraph (3) in the way appearing to the FCA to be best calculated to bring it to the attention of persons likely to be affected by it.

Power of the FCA to give directions

7.—(1) The FCA may give a direction under section 71O of FSMA 2000(13) imposing on a person or a description of persons such requirements as the FCA considers appropriate in relation to the carrying on of an activity specified in regulation 5.

(2) In the following provisions of this regulation “a direction” means a direction given under section 71O of FSMA 2000 by virtue of paragraph (1).

(3) The FCA may give a direction only if it appears to the FCA—

(a) in the case of a direction given to a person, that in carrying on the activity the person is failing, or is likely to fail, to comply with a requirement imposed on the person by designated activity rules made by virtue of regulation 6, or

(b) in the case of a direction given to a person or a description of persons, that it is desirable to exercise the power for the purposes of advancing any of the FCA’s operational objectives set out in section 1B(3) of FSMA 2000.

(4) Before giving, varying or revoking a direction, where the exercise of the power relates to a PRA-authorised person (as defined in section 2B(5) of FSMA 2000(14)), the FCA must consult the PRA.

Temporary exemptions

8.—(1) Before 1 January 2027, designated activity rules made by virtue of regulation 6 do not apply to a person listed in paragraph (2) where the conditions in paragraph (3) are met.

(2) The persons referred to in paragraph (1) are—

(a) for UK UCITS—

(i) the management company (as defined in section 237(2) of FSMA 2000(15)) of a UK UCITS;

(ii) an authorised open-ended investment company which is a UK UCITS;

(iii) a person advising on a UK UCITS where the advice is given to—

(aa) a retail investor located in the United Kingdom, or

(bb) an agent for that investor;

(iv) a person offering or selling units of a UK UCITS to a retail investor located in the United Kingdom;

(b) for EEA UCITS—

(i) the management company (as defined in point (b) of Article 2(1) of the UCITS Directive) of an EEA UCITS;

(ii) an investment company referred to in Article 27 of the UCITS Directive (conditions for an investment company);

(iii) a person advising on an EEA UCITS where the advice is given to—

(aa) a retail investor located in the United Kingdom, or

(bb) an agent for that investor;

(iv) a person offering or selling units of an EEA UCITS to a retail investor located in the United Kingdom;

(c) for non-UCITS retail schemes—

(i) the operator or authorised corporate director of a non-UCITS retail scheme;

(ii) an authorised open-ended investment company which is a non-UCITS retail scheme;

(iii) a person advising on a non-UCITS retail scheme where the advice is given to—

(aa) a retail investor located in the United Kingdom, or

(bb) an agent for that investor;

(iv) a person offering or selling units of a non-UCITS retail scheme to a retail investor located in the United Kingdom.

(3) The conditions referred to in paragraph (1) are—

(a) for UK UCITS, that the operator complies with:

(i) rules made by the FCA, to the extent they apply to key investor information provided by, or in relation to, a UK UCITS, and

(ii) the KII regulation;

(b) for EEA UCITS recognised by virtue of regulation 62 of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (temporary recognition for EEA UCITS or sub-fund of EEA UCITS)(16), that the operator complies with the duties imposed by regulation 66 of those Regulations;

(c) for EEA UCITS recognised under section 271A or 272 of FSMA 2000 (recognised collective investment schemes)(17), that the operator complies with duties corresponding to those that, if the United Kingdom were a UCITS host Member State for the purposes of the UCITS Directive, would be imposed on the operator in accordance with Article 94 of that Directive, to the extent it applies to key investor information (referred to in Article 78 of that Directive);

(d) for non-UCITS retail schemes, the operator complies with:

(i) rules made by the FCA, to the extent they apply to key investor information provided by, or in relation to, a non-UCITS retail scheme, and

(ii) where applicable, the KII regulation.

(4) In this regulation—

(a) “advising on”, in relation to a unit of a UK UCITS, EEA UCITS or non-UCITS retail scheme, means giving advice on the merits of—

(i) buying, selling, subscribing for, exchanging, holding or redeeming a unit of a UK UCITS, EEA UCITS or non-UCITS retail scheme,

(ii) exercising, or not exercising, any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem a unit of a UK UCITS, EEA UCITS or non-UCITS retail scheme, or

(iii) entering into an agreement relating to a UK UCITS, EEA UCITS or non-UCITS retail scheme;

(b) “authorised corporate director” means a person who meets the requirements set out in regulation 15(6) of the Open-Ended Investment Companies Regulations 2001 (requirements for a sole director)(18));

(c) “key investor information” (other than in paragraph (3)(c)), “long-term asset fund” and “qualified investor scheme” have the meaning given by the Glossary forming part of the Handbook made by the Financial Conduct Authority under FSMA 2000 (as that Handbook has effect from time to time);

(d) “KII regulation” means Commission Regulation (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website(19);

(e) “non-UCITS retail scheme” means an authorised fund which is not a UK UCITS, a qualified investor scheme or a long-term asset fund, and for these purposes “authorised fund” means—

(i) an authorised unit trust scheme,

(ii) an authorised contractual scheme, or

(iii) an authorised open-ended investment company;

(f) “an authorised unit trust scheme”, “an authorised contractual scheme”, “an authorised open-ended investment company”, “EEA UCITS” (but see sub-paragraph (k)), “the operator”, “sub-fund”, “UK UCITS” and “units” have the meanings given in section 237 of FSMA 2000 (other definitions)(20);

(g) “offering”, in relation to a unit of a UK UCITS, EEA UCITS or non-UCITS retail scheme, means communicating sufficient information on—

(i) the unit, and

(ii) the terms on which it is offered,

to enable a person to decide to buy, subscribe for or enter into an agreement relating to, the unit;

(h) “selling”, in relation to a unit of a UK UCITS, EEA UCITS or non-UCITS retail scheme, includes disposing of the unit for valuable consideration, and for these purposes “disposing” includes—

(i) in the case of a unit consisting of rights under a contract—

(aa) surrendering, assigning or converting those rights, or

(bb) assuming the corresponding liabilities under the contract,

(ii) in the case of a unit consisting of rights under other arrangements, assuming the corresponding liabilities under the arrangements, and

(iii) in the case of any other unit, granting the rights or interests of which it consists;

(i) “UCITS Directive” means Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities as it had effect immediately before IP completion day(21);

(j) Article 94 of the UCITS Directive is to be read as if—

(i) references to the UCITS host Member State or such Member State were references to the United Kingdom, and

(ii) references to the competent authority of the UCITS host Member State were references to the FCA;

(k) references to an EEA UCITS include a reference to a sub-fund of an EEA UCITS;

(l) in paragraph (3), references to rules made by the FCA exclude designated activity rules made by virtue of regulation 6.

PART 3 Civil Liability

Civil liability for breaches of designated activity rules

9.—(1) A contravention of a designated activity rule made by virtue of regulation 6 is actionable at the suit of a retail investor who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.

(2) If designated activity rules made by virtue of regulation 6 so provide, paragraph (1) does not apply to a contravention of a specified provision of the rules.

PART 4 Application with modifications of FSMA 2000 etc and consequential amendments

Application with modifications of provisions of FSMA 2000 and amendments of secondary legislation

10.  In Schedule 1—

(a) Part 1 applies provisions of FSMA 2000 to these Regulations with modifications, and

(b) Part 2 contains amendments of secondary legislation.

Consequential amendments

11.  In Schedule 2—

(a) Part 1 contains an amendment of FSMA 2000,

(b) Part 2 contains amendments of secondary legislation, and

(c) Part 3 contains amendments of assimilated direct legislation.

Vicky Foxcroft

Jeff Smith

Two of the Lords Commissioners of His Majesty’s Treasury

21st November 2024