HM Treasury and FCA announce temporary exemption from regulated cost disclosure requirements for investment trusts

September 20, 2024

The UK government yesterday announced an exemption to the current cost disclosure requirements for investment trusts. In a move warmly welcomed by the sector, the UK government and the FCA announced¹ that the requirements would temporarily be withdrawn until "legislation to amend the PRIIPs Regulation comes into force".

Since January 2018, the Packaged Retail and Insurance-based Investment Products Regulations (PRIIPs) and the Markets in Financial Instruments Directive (MiFID) have required investment trusts to report costs in the same format as unlisted open-ended funds. This has led to a sense of "double counting" of costs for investment trusts, which is believed to have had an impact on the UK economy in terms of significant lost investment.²

As investment trusts are traded instruments, campaigners have argued that their market values already fully reflect costs.

FCA's new forbearance

In light of yesterday's announcement, the FCA will immediately apply new forbearance³ to provide certainty for firms ahead of the legislation taking effect. For the period from 19 September until the new regime for Consumer Composite Investments (CCIs) comes into force, the FCA will not take supervisory or enforcement action if an investment trust chooses not to follow the requirements of PRIIPs and associated technical standards, and/or the relevant requirements of the UK version of MiFID.⁴

The FCA noted that firms need to take into account whether taking advantage of the forbearance will impact on other legislation to which they are subject. They noted that this includes complying with the Consumer Duty and its principles of fair, clear and not misleading communications, alongside the COBS requirements to act fairly, honestly and professionally in the best interest of clients.

New CCI regime

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 the CCI regime this autumn. The proposed new CCI regime is intended to better cater for investment trusts while still ensuring consumers receive appropriate information to allow them to make meaningful choices between investment opportunities regarding composite consumer investments.

Outlook

The reforms form part of the UK government's programme to reinvigorate the UK's capital markets,⁵ in which investment trusts play a prominent role. It is hoped that removing the requirement for investment trusts to "double count" costs could help to attract additional investment in the sector and boost demand for share prices.

1. See "Reforms to financial services retail-disclosure requirements"↩
2. See "Investment trust cost disclosure requirements: urgent steps needed to resolve problems caused by FCA's rule misinterpretation"↩
3. See "Statement on forbearance in relation to investment trust disclosure requirements"↩
4. Article 50(2)(b) and Article 51↩
5. See "Financial Services: The Edinburgh Reforms"↩