‘Utterly fantastic news’ for investment trusts as Government announces changes to cost disclosure rules

HM Treasury, the FCA, and Tulip Siddiq (Economic Secretary to the Treasury and City Minister) have announced plans to reform UK retail disclosure rules – by James Carthew

 
They also said that, in the meantime, investment trusts will be temporarily exempted from assimilated EU law requirements (i.e. compliance with EU-inherited Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulations).

The statement says that the Government and Financial Conduct Authority (FCA) are committed to the ongoing reform programme to reinvigorate the UK’s capital markets. They acknowledge that ensuring retail investors can make informed investment decisions is an important part of ensuring healthy capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer disclosure regulation with a new framework tailored to UK markets and firms.

The UK’s new retail disclosure regime is expected to be in place in H1 2025, subject to Parliamentary approval and the FCA consultation process. The FCA intends to consult on proposed rules for its proposed Consumer Composite Investments (CCI) regime this autumn.

The aim is that the new framework for CCIs will support investors to better understand what they are paying for and the value they are receiving through the distribution chain. The FCA’s consultation process will provide an opportunity for a full range of stakeholders to provide feedback on the new regime, to ensure it works as intended.

The intent is that the new CCI framework will be proportionate and will allow more bespoke arrangements to address concerns that have been raised with the current PRIIPs framework.

The statement even acknowledges that investment trusts “can be a valuable source of investment funding for both conventional and emerging asset classes.”
 

Ben Conway, head of fund management and chief investment officer at Hawksmoor and one of the leaders of the campaign to tackle this problem, described this as “Utterly fantastic news”. We agree. This is not a magic bullet to solve the sector’s discount problem and the absurd situation where wealth managers and others have been avoiding taking advantage of some of the amazing bargains in the sector. It will take time to rebuild, but this should help stop the rot.

Update

 
The AIC has published some handy advice as to the practical effects of this:

• member companies and their AIFMs can choose not to publish a KID. This means that old versions can be removed from websites and there is no requirement to update existing KIDs.
• distributors have no obligation to provide a KID to their clients before they purchase an investment company’s shares.
• client facing firms in the UK will be able to make ‘zero’ cost disclosure to their clients in respect of the company shares they have invested in.
• client facing firms in the UK will have no costs in relation to investment company shares when making aggregate cost disclosures to clients.
• company factsheets need not include a cost figure based on the PRIIPs methodology.
• For UK purposes, AIFMs can make a ‘blank’ cost disclosure in the European MiFID Template, which is used to distribute information on costs to the market.

 
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