The FCA has set out a further Consumer Composite Investment (CCI) consultation, aimed at simplifying rules around fee disclosures.
Among the key points of the second consultation, the regulator is consulting on removing the requirement for firms to calculate and disclose implicit transaction costs.
The regulator said the move would remove a “significant compliance requirement” for firms, while ensuring that consumers are still provided with the most relevant information about product transaction costs.
They are also consulting on simplifying overall cost disclosures by aligning other cost disclosure rules to CCI requirements, consequential amendments to other parts of the FCA Handbook that result from the new CCI rules, and provisions for the transitional period until the CCI regime comes into full force.
The second consultation will close on 28 May.
The initial consultation, which closed on 20 March, set out a new product information framework in a significant departure from EU-inherited rules. As part of this, Key Information Documents (KIDs) will be replaced by a ‘product summary’, which will allow for more flexibility regarding how information is presented.
In the same announcement as the second consultation, the FCA also confirmed that final CCI rules will be published in a policy statement in ‘late 2025’.
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Investment trust reaction
The first consultation prompted criticism from the investment trust industry, who argued that closed-ended funds should not fall under the scope of the regime as they are already subject to disclosures required from listed companies.
Reacting to the further consultation, Richard Stone, chief executive of the Association of Investment Companies (AIC), said the FCA’s announcement indicates that the regulator is willing to make meaningful changes to cost disclosure.
“Abolishing the calculation of implicit costs has been a long-standing demand of the AIC and this approach is a big step forward,” he said. “We hope it’s a signal that other serious problems with cost disclosure will also be addressed – specifically the pull through of underlying fund costs and the combining of different costs with different characteristics which both result in meaningless disclosures.
“The current approach to transaction costs has led in some circumstances to the disclosure of ‘negative costs’ which are confusing and nonsensical. Previous sticking plaster solutions have not removed the burden of calculating these costs which have no value to consumers and can distort disclosures.”
See also: Trust Talk: Gravis managing director William MacLeod on the CCI consultation
“We also welcome the FCA’s intention to change the rules so that consumers receive cost information calculated on the same basis at every point of their investment journey,” Stone added.
“Currently, the pre-sale information costs are based on an estimate of future costs and the post-sale information costs are the actual expenses incurred.
“This results in different numbers presented at different points in the investment journey and is very confusing for consumers. It’s good to see that the FCA has recognised this.”
This story was written by our sister title, Portfolio Adviser
