The investment industry has welcomed the Financial Conduct Authority’s decision to exempt investment trusts from complying with cost disclosure requirements.
In a statement published on Thursday, the City Watchdog and HM Treasury said they will temporarily suspend cost disclosure rules following feedback from the investment trust sector, which has long argued that the current regime does not work.
Richard Stone, chief executive of the Association of Investment Companies, said: “This leap forward on cost disclosure is great news for investment companies and their investors, The temporary suspension of the rules paves the way for a permanent solution to this long-standing and damaging problem.
“It’s good that the Treasury and FCA have recognised that the current cost disclosure regime is not working. The AIC has lobbied tirelessly on this issue and it’s encouraging that the Labour government has acted so swiftly.”
Ryan Hughes, interim managing director at AJ Bell Investments, also welcomed the announcement.
“Investment trusts play a hugely important role both in the financial services sector and the wider economy as a provider of capital and the unintended consequences of the current legislation created an unequal playing field that put investment trusts at a disadvantage and threatened, in some cases, their very existence,” he said.
Hughes said the removal of this “unnecessary barrier” will help the investment trusts sector regain its footing and allow them to compete equally against other investment structures which will put them back on the radar for investors who have been reluctant to use them as a result of the cost disclosure requirements.
“At a time when the government is looking to encourage investment in the UK and to encourage private capital to drive economic growth, the removal of any barriers that could hold this back should be viewed positively,” he added.
The decision from the FCA forms part of wider plans to reform UK retail disclosure rules. The government said it was committed to the ongoing reform programme to reinvigorate the UK’s capital markets by replacing EU-inherited consumer disclosure regulation with a new framework tailored to UK markets and firms.
The Treasury plans to replace the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation with a new framework for Consumer Composite Investments.
The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs. It is expected to be in place in the first half of 2025, with a consultation set to take place this autumn. The consultation process will provide a full range of stakeholders the opportunity to offer feedback to ensure it works as intended, the Treasury said.
Stone said: “It’s vital that these new rules recognise the unique characteristics of investment companies, permanently end misleading cost disclosures which distort the market, and enable investors to make better informed decisions.
“Investment companies are a great UK success story and have a vital role in bridging the gap between private assets and public markets. Ending misleading cost disclosures will enable us to continue delivering for investors and make a critical contribution to the economy as the government drives forward its ambitions for growth, investment and wealth creation.”
