The government and the Financial Conduct Authority (FCA) have lifted the much-criticised cost disclosure requirements on investment trusts. The government is developing its own consumer disclosure framework, which will include investment companies, but as an interim measure it has granted trusts an exemption from European Union rules.
From today until the UK’s new framework for Consumer Composite Investments (CCIs) comes into force, the FCA will not take supervisory or enforcement action against investment trusts that do not comply with the EU’s Packaged Retail and Insurance-based Investment Products regulation (PRIIPs).
Under PRIIPs, trusts were obliged to disclose the fees paid to their investment managers on their factsheets, creating the misleading impression that fees detract from investment performance – which is the case for open-ended funds but not for the share prices of investment trusts.
Today’s announcement was welcomed by industry executives. Richard Stone, chief executive of the Association of Investment Companies, said: “The temporary suspension of the rules paves the way for a permanent solution to this long-standing and damaging problem.”
It is “vital” that the new Consumer Composite Investments regime “permanently end[s] misleading cost disclosures which distort the market”, he stated.
Ryan Hughes, interim AJ Bell Investments managing director, said PRIIPs had created “an unequal playing field that put investment trusts at a disadvantage and threatened, in some cases, their very existence”.
“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 given the cost disclosure requirements,” he noted.
Christian Pittard, head of closed-end funds at abrdn, agreed that the exemption will “address unfair and distortive rules that have crippled investment trusts”.
“All eyes will now be on data publishers at a time when what the industry and investors really need is consistency,” he added.
The FCA’s move comes as Baroness Sharon Bowles’ private members bill to reform cost disclosure rules for investment companies makes its way through the House of Lords, having had its first reading on 5 September.