The UK has finally exempted investment trusts from complying with cost disclosure requirements that industry experts say could unlock billions in investment.
In a statement today, the government and Financial Conduct Authority said regulators would temporarily withdraw the requirements, which campaigners have argued force trusts to ‘double count’ their fees.
While this is also the case for open-ended funds, investment trusts are traded instruments, which, campaigners argue, means their market values should fully reflect fees.
In March, over 130 of the City’s most influential investment trust managers signed a joint letter to the government to abandon the cost disclosure regulations.
“Fixing the problem by doing the same as the rest of the world could restore over £7bn per year of lost investment – with no cost to the taxpayer,” the letter said.
The move from the FCA and the government comes as part of wider plans to reform UK retail disclosure rules.
The government stated it was committed to replacing EU-inherited regulations with a new framework tailored to UK markets.
This new framework is expected to come into force during the first half of next year, with the FCA planning to consult on rules for its proposed Consumer Composite Investments this autumn.
Richard Stone, chief executive of the investment trust trade body the Association of Investment Companies, said in a statement that the “great news” on cost disclosure “paves the way for a permanent solution to this long-standing and damaging problem”.
“The AIC has lobbied tirelessly on this issue and it’s encouraging that the Labour government has acted so swiftly,” he said.
“We welcome this move by government and the FCA to address unfair and distortive rules that have crippled investment trusts,” said Christian Pittard, head of closed-end funds at Abrdn, which is the third largest manager of investment trusts globally.
Eyes will now be on data publishers to see how quickly they will update their cost disclosures, he said.
“This is not a magic bullet to solve the sector’s discount problem and the absurd situation where wealth managers and others have been avoiding taking advantage of some of the amazing bargains in the sector,” added James Carthew, head of investment company research at Quoteddata.
“It will take time to rebuild, but this should help stop the rot.”