Two Baronesses from the House of Lords have expressed "deep concern" and "alarm" over the way the Financial Conduct Authority has handled the problematic cost disclosure regime interpretations.
Baroness Ros Altmann, former pensions minister, and Baroness Bowles, former MEP, said they have been pushing the regulator and parliament for a 'simple' fix to the problem caused by the FCA's interpretation of European Union rules for investment trusts.
In the UK, rules around cost disclosure treat investment trusts as collective investment vehicles, rather than as listed equities in their own right.
As previously reported by FT Adviser, this is not the case in Europe, but it is how the FCA has interpreted the rules in the UK, the Baronesses told attendees at a recent Gravis Capital webinar.
Altmann said: "It is deeply concerning that the regulator is not properly informed about how the market works, even though it is responsible for overseeing it."
Double counting
The interpretation of the rules for ITs means total costs incurred by ITs have to be shared with clients. However it is misleading to do so for ITs, as not all costs incurred by these listed companies end up being passed on to the end investor.
For example, under the UK interpretation, ITs must include audit fees in their total cost disclosure, but other listed companies do not have to do so.
Under the Priips rules, they are required to include transaction costs, even though the end investor does not bear these costs themselves.
This is artificially inflating the total expenses for investment trusts, making them look more expensive for pension funds, fund-of-funds and model portfolios, campaigners have claimed.
William MacLeod, managing director of Gravis Advisory, said: "In effect, we are double counting."
Altmann added: "This is in direct contradiction to the consumer duty, which is why we are having these apparently clear, fair and not misleading charge disclosures in the first place, to help people make properly informed decisions.
"But the way the FCA is interpreting the rules is making it not clear, not fair and misleading and I am more and more alarmed at the lack of urgency in dealing with this, even as its impact is becoming more serious."
As reported earlier this year by FT Adviser, more than 500 industry experts, lawyers and parliamentarians signed a letter calling on the Treasury to amend the investment trust rules to improve competitiveness.
However, nothing has happened, even though there are ongoing consultations on what the future of post-Brexit British financial regulation will look like.
Lack of transparency
Bowles said there was also a sense that the regulator was deliberately not allowing full transparency when it comes to addressing the issue.
She said: "The FCA seems to be undermining efforts to change this in government, despite their duty to consult.
