On 14 May 2024, the House of Lords Financial Services Regulation Committee (FSRC) published a letter it received from Nikhil Rathi, the Chief Executive of the Financial Conduct Authority (FCA), concerning reforms to the cost disclosure regime for investment trusts. The letter is dated 10 May 2024.

Mr Rathi highlights the important role played by investment trusts in the UK capital markets and confirms that the FCA recognises disclosure reforms are needed. He notes that the FCA is working closely with the Government as it considers the legislative steps necessary to enable a new regime to be put in place, flagging that any replacement regime will need to give firms flexibility to communicate to investors in ways that recognise the differences between various investment vehicles and gives investors sufficient and meaningful information to inform their decision making.

The letter responds to questions posed by the FSRC on topics including:

  • Why the FCA has made and sustained the decision to require investment trusts to be included in the cost disclosure and aggregation format, which the FSRC suggests is out of alignment with other countries in Europe.
  • When the inclusion of investment trusts in this format was consulted on. The FSRC suggests that this does not appear to be a straightforward requirement derived from EU legislation, but Mr Rathi states that to the FCA’s knowledge, the inclusion of close-ended investment funds (including investment trusts) within the scope of the PRIIPs Regulation has been generally uncontroversial throughout the EU.
  • How the FCA is working on resolving the market disruption which has come as a result of the cost disclosure requirements.
  • When the FCA expects to launch a consultation on the changes to the cost-disclosure regime and whether it can take immediate emergency action.
  • Examples of the FCA’s engagement with industry on this topic.