Regulatory Frequently AskedQuestions78

A consumer composite investment is assigned a pre-determined risk and return score of at least 9 where it is a CFD, a contingent convertible security (CoCo bond), a derivative, a security issued by a venture capital trust, or an investment in an Enterprise Investment Scheme (EIS). A score of at least 9 also applies where the CCI has a volatility track record of less than five years, reflecting its classification as very high risk due to insufficient historical data. In addition, a pre-determined score of at least 9 applies where the investment strategy involves significant leverage, where the retail investor could lose more than the amount invested, or where the pricing frequency is less than monthly.

Constraining benchmarks and target benchmarks must be included in the past performance chart. Comparator benchmarks may also be included, but their inclusion is optional.

A manufacturer must increase the risk and return score where its assessment indicates that the initial score may cause a retail investor to underestimate the risks of the consumer composite investment. In addition, where a consumer composite investment features low liquidity, the manufacturer must increase the score by one notch. Where the score is already 9, this additional increase does not need to be applied.

A manufacturer may reduce the risk and return score where it considers the score likely to overstate the overall risks of the investment, for example because the volatility calculation period included extreme market anomalies. A more significant reduction may be applied where the investment benefits from at least 90% capital protection under all market conditions. Any adjustment must be supported by documented rationale. However, the risk and return score of consumer composite investments assigned a pre-determined score of 9 cannot be reduced.

A manufacturer may depart from the standard approach where, on reasonable grounds, it expects future costs and charges to be materially different from those calculated using the preceding 12-month period (for example, due to a change in management fees). Where a fund has existed for less than 12 months, or where historical data would be misleading (excluding transaction costs), the manufacturer may instead base its estimates on the costs and charges of a reasonably comparable CCI. In such cases, the product summary must clearly identify which costs are estimated.

The CCI distinguishes between three types of benchmarks: constraining benchmarks, comparator benchmarks, and target benchmarks.

The time series used for risk calculation must be based on either weekly or monthly returns. Weekly data uses a frequency of m = 52 with T = 520 observations, while monthly data uses m = 12 with T = 120 observations. If the investment, or its underlying or reference assets, are priced less frequently than once per month, the consumer composite investment must be assigned a risk and return score of at least 9.

The CCI Product Summary Document includes numerical data such as the risk indicator score (1 to 10), past performance information and cost figures.

Distributors are responsible for making the manufacturer’s product summary available to investors and delivering it unaltered in a durable medium at the point of sale or shortly after. Distributors may not create or amend product summaries themselves.

Before a sale, distributors must ensure that consumers who would find it useful have access to the product summary and must highlight the key information needed to make a properly informed decision, including a brief description of the product, its ongoing and relevant costs, and its risk and return score.

While distributors cannot modify the product summary, they may use the manufacturer’s machine-readable underlying data to build consumer journeys and communications that meet investors’ information needs. The machine-readable information must be accessible on the manufacturer’s website.

Manufacturers should make core information disclosures available free of charge in an easily accessible location on their website, in a machine-readable electronic format that can be automatically processed by a computer without specialist software. In practice, this is expected to be similar to existing EMT and EPT formats.

This is a common question that many hesitate to ask. Here’s a simple breakdown:

EU Transaction Costs: Here the overall value of the transaction cost is floored at the level of the explicit transaction cost. Negative implicit transaction costs, Anti-Dilution Levies (ADL) or Swing Proceeds can not bring the total transaction cost below the explicit cost. If explicit costs are zero, the total transaction costs disclosed will be at least zero as well and cannot be brought below zero.

UK Transaction Costs: If the explicit and implicit costs combined are positive, the ADL can be substracted but it cannot bring the total cost below zero. Hence in this case a floor of zero applies. However, if the explicit and implicit costs combined are already negative, no ADL can be further deducted and it cannot impact the total transaction cost to become more negative or further below zero. Please note that in the latter case, the total reported UK transaction cost can be negative. Note that the FCA released a new CCI proposal that will make the implicit transaction cost no longer required for UK Product Summary Documents.

The FCA CCI (Consumer Composite Investments) regime is the UK framework that replaces PRIIPs/UCITS disclosures, requiring firms to provide a Consumer Composite Investments Product Summary Document (PSD) with clear, comparable information for retail investors.