Investment trust costs will no longer be double-counted after the UK government said it was scrapping current cost-disclosure rules, which make them appear more expensive to investors than they really are.
HM Treasury announced plans to reform retail disclosure rules inherited from the EU's Priips and Mifid directives next year, with an exemption for investment trusts coming in before that.
Following a consultation on replacing these EU-inherited regulations, the Treasury said it will legislate "as soon as possible" to provide the FCA with the appropriate powers to deliver this reform, with "more tailored and flexible rules" and help with costs.
By the end of this year, the government will simultaneously lay the legislation to exempt closed-ended UK-listed investment funds from the requirements of the current PRIIPs Regulation and parts of Articles 50 and 51 of the MiFID regulation.
From 19 September until the legislation comes into force, the Financial Conduct Authority said it "will not take supervisory or enforcement action" for investment trusts that remove the double-counting of their costs, as an interim forbearance measure, pending the longer-term reform.
Acknowledging the importance of investment trusts, which have over £260 billion of invested assets and represent close to 30% of the FTSE 350, including 3i Group PLC (LSE:III), Scottish Mortgage Investment Trust PLC (LSE:SMT) and Allianz Technology Trust PLC (LSE:ATT), the government promised to "lay legislation to exempt listed investment trusts from the current PRIIPs Regulation, as well as make other necessary amendments to other EU-assimilated law".
The investment trust industry, represented by the Association of Investment Companies (AIC), welcomed the news.
"This leap forward on cost disclosure is great news for investment companies and their investors. The temporary suspension of the rules paves the way for a permanent solution to this long-standing and damaging problem," said AIC chief Richard Stone.
"It’s good that the Treasury and FCA have recognised that the current cost disclosure regime is not working. The AIC has lobbied tirelessly on this issue and it’s encouraging that the Labour government has acted so swiftly.
"We look forward to working with the FCA as it consults on the new Consumer Composite Investments (CCI) regime. It’s vital that these new rules recognise the unique characteristics of investment companies, permanently end misleading cost disclosures which distort the market, and enable investors to make better informed decisions."