Temporary Measures: FCA Allows Investment Companies to Break Down Costs

by Tareq Sikder
  • Firms and funds are encouraged to incorporate additional details in line with the Consumer Duty.
  • Earlier, the organization proposed that investment firms maintain ample reserves for consumer compensation.
United kingdom, london
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The Financial Conduct Authority (FCA) has introduced temporary measures to allow investment companies to enhance the clarity of their cost disclosures, aiding consumers in making well-informed investment decisions. In response to concerns that current disclosure obligations result in ambiguous cost information, the FCA now permits funds to provide a factual breakdown of their costs.

Navigating Legislative Adjustments: FCA's Changes to Cost Disclosure

The introduced measures enable funds to provide additional context, particularly when the current legislative requirement for an aggregate figure may not accurately represent ongoing costs. The FCA has clarified that these measures are not a long-term solution.

Investment companies and funds investing in them are encouraged to consider incorporating this additional information into their broader disclosure documents. Firms are additionally expected to evaluate their obligations under the Consumer Duty. These changes align with the FCA's objectives under the Consumer Duty, ensuring consumers receive timely and comprehensible information.

The FCA is pursuing changes to the cost-disclosure regime, contingent on legislative adjustments, including the revocation of the PRIIPs Regulation. Following the Treasury's commitment to repealing relevant MiFID cost and charges provisions, the FCA anticipates designing a cost disclosure framework. The agency looks forward to implementing a retail disclosure regime in the future.

In response to the FCA's announcement regarding measures for investment company cost disclosure, a spokesperson from the Investment Association stated: "We welcome the FCA’s statement on costs and charges relating to listed closed-ended funds.” The current cost disclosure requirements for listed closed-ended funds have had the unintended consequence of creating confusion over fees, leading to adverse impacts on investment decisions.”

“Given current legal constraints, the FCA’s statement is a very focused measure, but one that reflects the wider importance of clearer disclosures in helping investors make informed choices on where to invest their money. In the near term, it will increase transparency, and we eagerly anticipate a broader discussion into next year on the future shape of the UK retail disclosure regime."

FCA's Proposals: Capital Reserves for Consumer Compensation

In an earlier report by Finance Magnates, it was highlighted that the FCA introduced proposals mandating personal investment firms to maintain sufficient capital reserves for compensating consumers affected by inadequate financial advice. The initiative adopts a "polluter pays" principle, holding firms accountable for the financial consequences of harmful advice.

Under the proposals, investment advisors must assess potential redress liabilities, ensuring adequate capital for compensation. Firms falling short will face automatic asset retention rules. This measure responds to the Financial Services Compensation Scheme disbursing £760 million from 2016 to 2022 for substandard advice, primarily from 75 firms.

Sarah Pritchard, the Executive Director of Markets and International at the FCA, emphasized the need for a resilient financial advice market to alleviate the unfair burden on diligent advisors. The FCA seeks industry and consumer group feedback, planning extensive outreach during the 16-week consultation. About 500 sole traders and prudentially supervised groups are exempt. The proposals align with the FCA's consumer investments strategy and three-year strategy focused on reducing harm and setting higher standards.

In regulatory updates, the FCA addresses dormant licenses, influencing over 1,100 business lines. The Q3 report highlights reviews of 5,300 financial promotions, aligning with stricter rules for crypto assets. The FCA has updated guidance for crypto asset firms, providing a transition period for compliance with marketing regulations.

The Financial Conduct Authority (FCA) has introduced temporary measures to allow investment companies to enhance the clarity of their cost disclosures, aiding consumers in making well-informed investment decisions. In response to concerns that current disclosure obligations result in ambiguous cost information, the FCA now permits funds to provide a factual breakdown of their costs.

Navigating Legislative Adjustments: FCA's Changes to Cost Disclosure

The introduced measures enable funds to provide additional context, particularly when the current legislative requirement for an aggregate figure may not accurately represent ongoing costs. The FCA has clarified that these measures are not a long-term solution.

Investment companies and funds investing in them are encouraged to consider incorporating this additional information into their broader disclosure documents. Firms are additionally expected to evaluate their obligations under the Consumer Duty. These changes align with the FCA's objectives under the Consumer Duty, ensuring consumers receive timely and comprehensible information.

The FCA is pursuing changes to the cost-disclosure regime, contingent on legislative adjustments, including the revocation of the PRIIPs Regulation. Following the Treasury's commitment to repealing relevant MiFID cost and charges provisions, the FCA anticipates designing a cost disclosure framework. The agency looks forward to implementing a retail disclosure regime in the future.

In response to the FCA's announcement regarding measures for investment company cost disclosure, a spokesperson from the Investment Association stated: "We welcome the FCA’s statement on costs and charges relating to listed closed-ended funds.” The current cost disclosure requirements for listed closed-ended funds have had the unintended consequence of creating confusion over fees, leading to adverse impacts on investment decisions.”

“Given current legal constraints, the FCA’s statement is a very focused measure, but one that reflects the wider importance of clearer disclosures in helping investors make informed choices on where to invest their money. In the near term, it will increase transparency, and we eagerly anticipate a broader discussion into next year on the future shape of the UK retail disclosure regime."

FCA's Proposals: Capital Reserves for Consumer Compensation

In an earlier report by Finance Magnates, it was highlighted that the FCA introduced proposals mandating personal investment firms to maintain sufficient capital reserves for compensating consumers affected by inadequate financial advice. The initiative adopts a "polluter pays" principle, holding firms accountable for the financial consequences of harmful advice.

Under the proposals, investment advisors must assess potential redress liabilities, ensuring adequate capital for compensation. Firms falling short will face automatic asset retention rules. This measure responds to the Financial Services Compensation Scheme disbursing £760 million from 2016 to 2022 for substandard advice, primarily from 75 firms.

Sarah Pritchard, the Executive Director of Markets and International at the FCA, emphasized the need for a resilient financial advice market to alleviate the unfair burden on diligent advisors. The FCA seeks industry and consumer group feedback, planning extensive outreach during the 16-week consultation. About 500 sole traders and prudentially supervised groups are exempt. The proposals align with the FCA's consumer investments strategy and three-year strategy focused on reducing harm and setting higher standards.

In regulatory updates, the FCA addresses dormant licenses, influencing over 1,100 business lines. The Q3 report highlights reviews of 5,300 financial promotions, aligning with stricter rules for crypto assets. The FCA has updated guidance for crypto asset firms, providing a transition period for compliance with marketing regulations.

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