The UK’s financial market watchdog unveiled a new round of proposals to simplify investment disclosure requirements, aiming to make product information more transparent and engaging for retail investors.
FCA Plans to Cut “Imprecise” Transaction Cost Disclosures for UK Investment Products
The proposals build on the Financial Conduct Authority’s (FCA’s) December 2024 consultation on creating a new product information regime for Consumer Composite Investments (CCIs), a category that includes funds, structured products, and insurance-based investments that around 12.6 million UK adults currently hold.
A key proposal would eliminate requirements for firms to calculate and disclose “implicit” transaction costs, which the FCA describes as “imprecise and hard to measure accurately.” The regulator would maintain disclosure of “explicit” costs like broker fees, exchange fees, and stamp duty.
“Implicit transaction costs, including slippage, can be imprecise and hard to measure accurately,” the FCA stated in its consultation paper. “The bid-ask spread is determined by market movements and can be largely outside the control of firms, producing both positive and negative costs.”
This simplification aims to reduce compliance burdens while ensuring consumers retain access to the most relevant cost information.
What The Second Consultation Covers
- Removing implicit transaction cost disclosures: Firms would no longer calculate and show “hidden” costs like bid-ask spreads when buying/selling investments. Only direct costs like broker fees and taxes would be disclosed.
- Simplifying cost disclosures: Creating one consistent approach to cost disclosure instead of multiple overlapping rules from different regulations.
- Handbook amendments: Updating various parts of the FCA Handbook to replace references to old regulations with new CCI terminology.
- Transitional provisions: Rules for how firms can move from old disclosure documents to the new format during a transition period.
- Complaints handling for unauthorized firms: New requirements for unauthorized CCI manufacturers to implement basic complaints procedures.
Harmonizing Disclosure Requirements
The consultation also seeks to align pre-sale and post-sale cost disclosure requirements that originated in the Markets in Financial Instruments Directive Organization Regulation (MiFID Org Reg) with the new CCI regime to prevent duplication and inconsistencies.
“We want to ensure the disclosure requirements in the MiFID Org Reg do not duplicate or impose additional requirements to the CCI regime for products subject to both regulations,” the FCA noted.
Transitional Provisions and Complaints Handling
The regulator proposed rules for a transition period during which manufacturers will have the flexibility to continue producing existing disclosure documents or switch to the new product summary format.
Additionally, the FCA proposed requiring unauthorized CCI manufacturers to implement “reasonable and transparent” complaints handling procedures, ensuring retail investors can register and have complaints addressed “without unreasonable delay and in a competent, diligent and impartial way.”
In the meantime, the FCA has opened its first overseas offices in the US and Asia to promote cross-border investments.
Moving Beyond EU-Era Rules
The proposals represent another step in replacing disclosure requirements introduced across Europe when the UK was an EU member with a system tailored to the UK market. The regulator wants to take a similar step in the £12 trillion asset management sector, as it announced earlier this month.
“We want a simpler and more flexible retail disclosure regime that gives consumers higher quality and more useful information and empowers firms to design more engaging ways of communicating that information,” the FCA said.
The regulator estimates the proposals will cost firms approximately £3.2 million over a ten-year period, primarily for familiarization, legal costs, and implementing complaints handling systems.
The consultation remains open until May 28, 2025, with the FCA planning to issue final rules in late 2025 following further engagement with stakeholders.
