Concerns about how the Financial Conduct Authority (FCA) has
applied the cost disclosure regime to investment trusts have been
highlighted by the House of Lords Financial Services Regulation
Committee.
In a letter to the FCA's chief executive, published today, the
committee is critical of the UK's application of retained EU
Regulations which requires investment trusts to report costs in
the same format as unlisted open-ended funds. This fails to
recognise the role of listed company shares as the value of the
financial instrument invested in, and indeed the mechanism
creating investment permanence.
This has created a falsely elevated number for aggregated ongoing
cost forecasts of funds which are held by investment trusts,
giving misleading information to investors and indicating that
costs/expenses are to be deducted annually from
shareholdings.
The negative impact the FCA's interpretation of EU-retained MiFID
(Markets in Financial Instruments Directive) and PRIIPs (Packaged
Retail Investment and Insurance-based Products) has had includes:
- a significant decrease in money invested in investment trusts
– the industry states that they are missing out on £7 billion a
year that could be directly allocated to sectors of the UK's real
economy;
- a material loss of permanent investment into the capital
market via equity trusts; and
- the acquisition of UK real assets by foreign investors at
significantly reduced prices.
, member of
the House of Lords Financial Services Regulation Committee, said:
“Since the first one was founded in 1868, investment trusts have
become a British success story. They have given institutions and
individuals an opportunity to invest in infrastructure, growth
companies and renewable energy.
“This success is under threat by the FCA's interpretation of
EU-retained MiFID and PRIIPs, which is not shared by any other
country, and has created an unlevel playing field on an
international level.
“Urgent steps are necessary to resolve the problems that have
been created. The FCA's forbearance statement, which was issued
in November 2023, helped, but does not go far enough.
“A potential solution could lie in requiring Authorised Corporate
Directors to enter zero into the appropriate column that is for
ongoing fund charges, aligning with the practices of EU funds,
rather than inputting figures that result in misleading
disclosures.
"It is ludicrous that directors and companies are being forced to
make misleading statements to investors."
