On 1 May 2024, the House of Lords’ Financial Services Committee (Committee) published a letter (dated 30 April 2024) that it had sent to Nikhil Rathi (Chief Executive, FCA).

The letter follows a private briefing that Mr Rathi provided the Committee with and follows up on cost disclosure requirements for listed investment companies which was raised during the session. The letter states that the cost disclosure regime applied to investment trusts in the UK has been a cause for concern in the industry for some time now and that as a result investment flowing into UK investment trusts has been significantly reduced. The letter adds that this issue is founded on an interpretation of the EU-retained versions of MiFID II and the PRIIPs Regulation not shared by any other country and that this ultimately creates an unlevel playing field on an international level.

The letter notes that the Government has announced that it will act on the issue and legislate on these matters in 2024. It also notes that the Government has left the FCA to create an interim solution to mitigate the impacts on the investment industry. The FCA has already issued a forbearance statement last November but the Committee feels that it does not go far enough.  

The Committee states that urgent steps are necessary to resolve issues which have come as a result of the UK’s unique interpretation. It adds that it would be helpful if Mr Rathi could provide answers to the following questions:

  • Can you explain why the FCA has made and sustained the decision to require investment trusts to be included in the cost-disclosure and aggregation format when no other country in Europe must do likewise?
  • When was the inclusion of investment trusts in this format consulted upon, as it does not appear a straightforward requirement derived from EU legislation?
  • How is the FCA working on resolving the market disruption which has come as a result of the cost disclosure requirements?
  • Given the urgency of the situation, and your understanding that once the legislation is enacted, the issue will transition to the FCA’s rulebook, when do you expect to launch a consultation on the changes to the cost-disclosure regime and can you take immediate emergency action?
  • Could you confirm that once the statutory instruments are made, this issue will be solved?
  • Could you provide examples of where the FCA has engaged with industry on this matter?
  • What is being done by way of communication to regulated entities such as investment platforms and Authorised Corporate Directors to alert them and ensure the data trail via the European MiFID template is brought into line with the principles of the forbearance and to prevent further elaboration of wrongful cost explanations and delisting from platforms?