AGEFI Luxembourg - juin 2025

AGEFI Luxembourg 16 Juin 2025 Conseil / RSE By Francois Kim HUGE, Partner, and Tobias DEGUNTHER, Director Deloitte Luxembourg Anewparadigmfor investor disclosure in theUK T heUK investment landscape is undergoing a significant trans- formationwith the advent of theConsumer Composite Investments (CCI) regime, a pivotal shift that replaces the previous PackagedRe- tail and Insurance-based In- vestment Products (PRIIPs) Key InformationDocuments (KIDs).As the author of the ori- ginal article, “More than just another KID. The genesis of change: FromPRIIPs toCCI For a time, the PRIIPs KID, a three-page standard- izeddocument, sought toequip retail investorswith key information concerning complex investment products. While its purpose is to provide clear in- formation, its format and detailed methodologies sometimes createdchallenges, potentially leading to excessive informationandoccasionallyvariedviews on riskandperformance. The limitations of thePRI- IPsKIDbecameparticularlyevidentwhenaddress- ing complex structures, as it did not always fully convey the complete nature and risks of multi-op- tion products or those with non-linear payoffs. Acknowledging theseobservations, theUK’sFinan- cialConductAuthority(FCA)initiatedacomprehen- sive review, which led to the creation of the CCI regime. The FCA’s aim is to develop a product in- formation framework that offers more adaptability and proportionality, with a focus on beneficial con- sumer outcomes. This involves enabling consumers to make effective, timely, and well-informed deci- sions, while also allowing firms to customize their communications to suit various investor require- ments. Themove toCCI representsmore than just a regulatory revision; it signifies a strategic opportu- nity for assetmanagers to re-evaluate theirmethods for transparency and engagement. DefiningConsumer Composite Investments Under the proposed FCA rules, a CCI is broadly de- fined as “an investment or a contract of insurance where the value or amount payable to the investor is subject to fluctuations because of exposure to refer- ence values or to the performance of one ormore as- setswhicharenotdirectlypurchasedbytheinvestor.” This broad definition encompasses a wide array of products previously captured by PRIIPs, including funds (UCITS, Non-UCITS Retail Schemes, overseas funds), structured products, insurance-based invest- ment products, Contracts for Difference (CFDs), and other derivatives. Crucially, the CCI regime will replace both PRIIPs KIDs and UCITS Key Investor Information Docu- ments(KIIDs)witha“ProductSummary.”Thismove signalsadeliberatedeparturefromtherigidtemplate- driven approach of its predecessors, offering manu- facturers and distributors more flexibility in presentinginformation.TheFCA’sambitionistocre- ate a new, bolder regime that works for both con- sumers and the wider market. Key differentiators: CCI vs. PRIIPs ThedistinctionsbetweentheCCIframeworkandthe outgoing PRIIPs regime are significant and warrant close examination: - Product summary over KID/KIID: Replaces pre- scriptive documents with a more flexible “Product Summary,” allowing firms greater discretion in pre- sentation. - Simplified cost presentations: Consolidates costs into a single percentage over 12 months, simplifying previouscomplexyieldreductionmethodologiesand reducing implicit transaction cost reporting. - Revised risk scale: Expands to a 1-10 range based onvolatility,providingamoreintuitiveriskrepresen- tation for all products,with complex/riskier products receiving aminimumscore of nine. - Improved performance reporting: Advocates for a 10-year performance graph (where data is avail- able) for amore comprehensive and accessible his- torical view. - Increased flexibility and responsibility: Grants firmsmore autonomy inmeeting customer informa- tionneeds, aligningwith theConsumerDuty’s focus ongoodoutcomes. - Collaboration across the distribution chain: Man- dates explicit engagement, with manufacturers pro- viding machine-readable “Core Information” for distributors to use or tailor their own Product Sum- maries. The critical role of the distributor: Apartnership in transparency Under the new CCI regime, the distributor’s role is central.Asthedirectinterfacewithretailinvestors,dis- tributors possess a unique understanding of client needs, circumstances, and risk appetite. The FCA mandatesthatdistributorsreviewandassesstheman- ufacturer’s “Product Summary” and“Core Informa- tion,” ensuring its appropriateness for their specific client base and its alignment with their Consumer Duty obligations, particularly regarding consumer understanding and fair value. A key CCI innovation is that distributors can choose tousethemanufacturer’sProductSummaryorcreate their ownutilizing theprovided“Core Information.” Thisdiscretionstemsfromtheunderstandingthatdis- tributorsoftenhavethedeepestinsightintotheirtarget market,thusempoweringthemtotailor,simplify,and add necessary explanations, drawing on their direct knowledge of client needs. Distributors are di- rectly responsible for ensuring consumer un- derstanding,takingreasonablestepstoensure the Product Summary meets information needs and is easily grasped. They must pro- videtheProductSummarybothpre-andpost- sale in a durable medium, ensuring ongoing access to crucial information. Distributors are also tasked with continuous monitoring and updates of their distribution arrangements,seamlesslyinte- gratingmanufacturerchanges. Essentially,theyareexpectedto provide actionable feedback to manufacturersregardingtheef- fectiveness of their communica- tions and any identified harms, closingtheproductgovernanceloop. ThesuccessofCCIfundamentallyrestsonasymbiotic relationshipbetweenassetmanagers(manufacturers) anddistributors. This collaborative imperativedrives open and timely information exchange, with manu- facturers providing comprehensive, machine-read- able “Core Information” and distributors offering structured feedback. Joint development of communication strategies is vital, involving shared understanding of investor personas andpotentially co-creationof educational materials. This also includes a shared understand- ing of target markets, where manufacturers seek granular input fromdistributors to ensure products and information are truly suited to end-users. Tech- nological integration and data sharing are paramount enablers for this collaboration, allowing for personalized disclosures. Furthermore, continuous training and knowledge transferarevital,asisarobustframeworkforaddress- ingconcernsandremediationshouldissuesarise.This partnership, rooted in transparencyandsharedcom- mitmenttoconsumeroutcomes,isessentialfortrans- forming investment communication and fostering robust, trustworthy relationships. Navigating the transition: Challenges and opportunities for assetmanagers ThetransitiontotheCCIframeworkisnotwithoutits challenges. Firms will need to invest in systems and processes to adapt to theupdateddisclosure require- ments, potentially leading tohigher operational costs in the short term. Initial investments in technology, training, and legal reviewwill be necessary to ensure full compliance. While the CCI framework offers flexibility, its inter- pretationandconsistentapplicationacrosstheindus- try will demand careful attention to avoid disparate approaches that could hinder comparability for con- sumers. The FCA’s ongoing consultations and final guidance will be crucial in this regard. Striking the right balance between allowing firms to tailor com- munications and ensuring sufficient standardization for comparability across productswill be anongoing challenge. However, proactive adaptation can trans- formthese challenges into significant opportunities. Bymovingaway fromrigid templates, firms cancre- atemore intuitive, engaging, andpersonalizedprod- uct summaries, leading to enhanced investor understanding and engagement. This allows for the useofclearerlanguage,visualaids,andinteractiveel- ements, ultimately fostering better investor compre- hension and stronger relationships. Transparent and easily understandable disclosures naturally build trust, and the CCI regime, by fostering clearer com- munication,canhelprebuildconfidenceintheinvest- ment industry, particularly concerning complex products oftenperceived as opaque. FirmsthatproactivelyembracetheCCIframeworkas anopportunitytoinnovatetheircommunicationstrat- egy, rather than just a compliance hurdle, will gain a significant competitive edge. While initial costs may behigher,optimizingcontentmanagementandlever- aging technology can lead to long-term operational efficiencies. Modular, data-rich content formats can facilitate quicker adjustments to reports and stream- line the overall disclosure process. Ultimately, the CCI framework reinforces the princi- plesoftheConsumerDuty,encouragingfirmstogen- uinely consider and deliver good outcomes for their retail customers. This holistic approach to clientwell- being candifferentiate firms in a crowdedmarket. The broader regulatory context: Ashift towards outcomes TheCCI regime ispart of abroader global regulatory trendtowardsenhancinginvestorprotectionandpro- moting good outcomes. Regulators, including the FCAandEuropeanSecuritiesandMarketsAuthority (ESMA), are increasingly scrutinizing how financial products are designed, distributed, and communi- catedtoretailinvestors.ESMA’songoing“CallforEv- idenceontheretailinvestorjourney”underscoresthe continued focus on whether existing regulatory dis- closures,suitabilityassessments,andperiodicreport- inggenuinely translate intobetter investor outcomes. The emphasis is shifting frommerely providing in- formationtoensuringthatinformationisunderstood and leads to informeddecision-making. This regulatory evolution, exemplified by the CCI framework,presentsanopportunityforthefinancial industry to move beyond a compliance-driven mindset and embrace a genuine commitment to client-centricity. By seeing the CCI transition not as a burden but as a catalyst for innovation in commu- nication, asset managers can build stronger, more trusted relationships with their retail investors, ulti- mately fosteringamore resilient and transparent in- vestment ecosystem. Conclusion The transition to the Consumer Composite Invest- ments (CCI) regimemarks a significant step forward in the UK’s approach to retail investor disclosure. By offering greater flexibility and a renewed focus on clarity and engagement, it provides asset managers with a unique opportunity to redefine their client communicationstrategies.Embracingthisshiftproac- tively and fostering strong collaboration between manufacturers and distributors will be crucial for firmstonotonlymeettheirregulatoryobligationsbut also to build deeper trust, enhance investor under- standing,andultimatelysecureacompetitiveadvan- tageinadynamicanddemandingmarket.Thefuture ofadvicehingesoneffectivecommunication,andthe CCI framework provides the blueprint for a more transparent, engaging, and outcomes-focused dia- loguewith retail investors. Beyond the KID: Unlocking new communication opportunities with consumer composite investments N ewresearchwithpri- vate credit executives shows they expect competition in the sector to increase across Europe and in their own region, with covenant headroomrated as themost important competi- tive factor. The study from Nordic Trustee, part of global capitalmarkets ser- vices providerOcorian, withpri- vate credit executives across the UK & Ireland, Germany, Switzerland, Benelux, the Nordics and Eastern Europe found 28% say the European direct lendingmarket is current- ly highly competitive. More than two-thirds (65%) questioned believe the market is only moderately competitive while 7% say competition in the sector is limited, the study with professionalsworking across pri- vate credit and debt fund man- agement, private equity and large corporates that use private credit as a source of funding, and debt advisory firms. However, the research found that they expect the level of competition to increase over the next three to five years both at a European level and in their own region. More than four out of five (81%) believe competition at the European levelwill increasewith one in seven (14%) predicting it will increase significantly. In their own region 85% say com- petition will increase with 41% predicting significant increases. Substantial covenant headroom was identified as the most important competitive factor in the study, which asked execu- tives to rate their top three most important factors aheadof attrac- tive durations and the lowest possible creditmargin. The high- est possible leverage was rated aheadof tailor-made credit struc- tures in fourth and fifth place with simple security packages ranked aheadof no amortization and/or PIK interest and no or limited dividend restrictions which was rated last. Christoffer Anderson, Head of Private Credit at Nordic Trustee, said: “Private credit executives in Europe believe competition across the market will intensify over the next three to five years with competition in their region likely to increasemore than com- petition at the European level. Covenant headroom, attractive durations and lowest possible credit margins are seen as the most important competitive fac- tors for direct lenders in the Europeanmarket.” Eamon Burns, Global Head of Fund Accounting at Ocorian, said: “The disintermediation of traditional lending continues to open up significant opportuni- ties for private credit managers — but many don’t yet have the infrastructure to capitalise on it efficiently. By combiningNordic Trustee’s loanagency capabilities with our loan administration fund platform, we’re uniquely positioned to enablemanagers to scale their business in today’s competitive environment.” Withover30years’expertiseinthe bond and loan markets and a track record of facilitating 14,000 transactionsovertheyears,Nordic Trustee brings an unparalleled depth of knowledge to support bond and loan transactions in the UK and Europe. It differentiates itself through its proprietary tech- nology, extensive restructuring expertise which includes more than 450 restructurings and 2,000 noteholdermeetings, and a prob- lem-solvingapproachthatstream- lines complex transactions for issuersandinvestorsalike.Nordic Trusteeiscommittedtodelivering best-in-class trustee and loan agency services tailored to the needs of issuers, investors, and intermediaries. Private credit competition is set to intensify in Europe ©Freepik