Treasury’s cost disclosure promise in Autumn Statement ‘welcome’ but pace of change ‘disappointing’

Lauren Hardy, Portfolio Adviser, 22 NOVEMBER 2023:

The Financial Conduct Authority (FCA) has been given the power to overhaul issues with cost disclosure regulation unfairly penalising investment companies, it has been confirmed in the statement accompanying today’s (22 November) Autumn Statement.

While the move has been applauded, others are disappointed by the pace of change set out, with 10 January being given as the date for submissions to the FCA.

Key figures across the investment company industry have campaigned for several years for an overhaul to Cost Disclosure Regulation and for trusts to no longer be categorised as Alternative Investment Funds (AIFs) because, given regulation under the Alternative Investment Fund Managers Directive (AIFMD), they must disclose ongoing charges in their Key Investor Documents (KIDs) based on their underlying net asset values, despite the fact investors are purchasing their shares at price. This therefore makes their charges appear artificially more expensive than their open-ended counterparts. KID regulation falls under EU law Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation.

Earlier this month, a Private Member’s Bill on overhauling the regulatory burden for trusts by Baroness Altmann was passed in the House of Lords. She also entered the ballot to ask a question in the House last week on cost disclosure regulation, which was successful. Her Bill was due to receive its first reading today.

This year’s Autumn Statement confirmed that the Treasury has drafted a statutory instrument setting out how it will replace PRIPPs regulation with “a new framework tailored to the UK”…

James Carthew, head of investment company research at QuotedData, said his reading of the statements made is that “the old inflexible and misleading EU rules will be swept away”.

“What isn’t yet clear is what will replace them. We see that: ‘The FCA will publish a consultation on their draft rules to replace the PRIIPs Regulation, and certain MiFID provisions related to cost disclosure, in due course’. It is also worth highlighting that ‘HM Treasury intends to legislate in 2024, subject to Parliamentary time’.

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