The Financial Conduct Authority has launched a second consultation setting out simplified cost disclosures for consumer composite investments.
The regulator estimates that more than 12.6 million UK investors hold an investment that falls within the scope of a CCI.
Proposals in the FCA’s latest consultation include simplifying overall cost disclosures by aligning other cost disclosure rules to CCI requirements.
It also includes a proposal to remove the requirement for firms to calculate and disclose implicit transaction costs, which it said would remove a significant compliance requirement for firms, while ensuring that consumers are still provided with the most relevant information about product transaction costs.
The consultation will also explore what changes would be needed to the FCA handbook as a result of the new rules and provisions for the transitional period until the CCI regime comes into full force.
The FCA said the proposals, together with those in the first consultation, set out its ambition of building a “new, bolder regime” and said it is open minded about how it can be designed in a way which best meets the needs of prospective investors.
A policy statement covering both consultations with final rules will be published towards the end of this year.
Richard Stone, chief executive of the Association of Investment Companies, said: “Abolishing the calculation of implicit costs has been a long-standing demand of the AIC and this approach is a big step forward. We hope it’s a signal that other serious problems with cost disclosure will also be addressed, specifically the pull through of underlying fund costs and the combining of different costs with different characteristics which both result in meaningless disclosures.
“The current approach to transaction costs has led in some circumstances to the disclosure of ‘negative costs’ which are confusing and nonsensical. Previous sticking plaster solutions have not removed the burden of calculating these costs which have no value to consumers and can distort disclosures.”
Stone also welcomed the FCA’s intention to change the rules so that consumers receive cost information calculated on the same basis at every point of their investment journey.
“Currently, the pre-sale information costs are based on an estimate of future costs and the post-sale information costs are the actual expenses incurred. This results in different numbers presented at different points in the investment journey and is very confusing for consumers. It’s good to see that the FCA has recognised this.”
Simon Harrington, head of public affairs at PIMFA, also welcomed the new proposals.
“We’re pleased to see that the approach being proposed takes on board the feedback we shared as part of our response to the FCA’s initial consultation.
“Our concern with the initial CCI regime proposals was that they were overly complex and prescriptive and didn’t move things on from previous PRIIPs requirements enough. In particular, we had highlighted a lack of clarity for firms on what the regulator was proposing around MiFID related activity as well as transaction costs.
“It’s therefore extremely encouraging to see FCA’s movement on this issue and its intention to remove the requirement for firms to disclose implicit transaction costs as part of its costs disclosures.”
Harrington added that on first reading, the new approach to transaction costs “should support the regulator’s overall aim of reducing the risk of misleading consumers and distorting fund manager behaviour.”
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