The chancellor Jeremy Hunt has assured MPs that the Treasury and Financial Conduct Authority will work “at pace” to deliver much needed solutions to concerns about investment trust cost disclosures.
There are fears current European regulations (Markets in Financial Instruments Directive) can make investment trusts appear too costly and put off investors.
Conservative MP John Baron quizzed the chancellor at a Treasury Committee meeting last week (November 28).
He said: “These rules are courtesy of overzealous regulation. You are fully aware of the importance of investment trusts; they are a third of all FTSE 250 companies, and four investment trusts are FTSE 100 companies.
“Because they look unduly expensive, that is putting off investment in areas such as infrastructure, renewable energy and technology – areas that the government want to encourage.”
On the day of the Autumn Statement, the government published its “near final version” of a statutory instrument to replace inherited EU regulations on Packaged Retail and Insurance-based Investment Products (Priips).
A consultation on proposals will close on January 10 and Baron asked how soon after consultation closes that the industry would expect to see changes.
Hunt said there is a joint commitment between the Treasury and the FCA to “resolve issues at pace” both with Priips and Mifid regulations.
He said: “We do not want to see any unnecessary delays. I am optimistic that we will be able to resolve it quickly, even if I am not able to give you an exact date.”
“I will happily write to the FCA and not just ask for that information, but stress the importance of doing these things quickly.”
The FCA has since announced it will allow investment trusts to provide a breakdown of costs as a temporary measure to support the sector.
Current rules mean investment trusts are viewed as collective investment vehicles, rather than as equities.
This means the total costs incurred by a trust must be shared with a client, and means fund of funds investors and model portfolios are less able to invest in the asset class.
In a notice on November 30, the FCA said that under current EU laws, “the required costs and charges disclosure may not result in representative cost information being published”.
The regulator said while long-term solutions are being worked on, this would introduce some temporary measures to support the sector.
It said affected funds can provide “additional factual information”, including a breakdown of costs and provide extra context if they are concerned figures are not a clear reflection of ongoing costs.
The FCA notice reads: “The aim of this forbearance statement is to give greater flexibility for costs to be explained, including putting aggregate costs in context – pending more substantive change which will be possible through legislation which will give the FCA power to change the rules more substantively.
“We have worked with relevant trade bodies in preparing this notice. This statement will give trade bodies the ability to modify or issue guidance that will support a meaningful approach to calculating component charges.”
