Sharon Bowles

Ros Altmann

The FCA has laid out its suggestions for the new Consumer Composite Investment Rules which will replace old EU law. The part we are addressing is the ongoing saga of misrepresentation of costs/expenses for Listed Closed-ended Investment Companies.

The topic has been well aired in the House of Lords by Baronesses Bowles and Altmann, with the Financial Secretary to HMT, Lord Livermore, stating that the Government agree and that their ‘tireless efforts’ have brought about policy change. There has been cross party support from all front benches, independent peers and the Financial Services Regulation

Committee.
Unfortunately the proposals by the FCA only go part way towards correction and contradict the very policy and legislation change made by the Government following their own consultation and make other suggestions likely to create more confusion. The policy and legislative change were explained in the explanatory memorandum accompanying the PRIIPs Regulations made in November 2024 as below:

In paragraph 6.7 ‘Investment firms will no longer be required to disclose costs and charges relating to manufacturing and managing shares in closed-ended investment companies that are UK-listed when disclosing costs and charges information to clients pursuant to the MiFID Org Regulation’,

and

Paragraph 7.3 that this was a response to the HMT CCI Consultation in January 2024 and ‘This instrument therefore represents an immediate change in policy to address these concerns.’

This does NOT mean that costs and charges are not disclosed, it means that they will no longer have to be disclosed (explained) in a way that mistakenly shows them being directly and additionally charged to the investor as well as already being taken into account in the share price, which is what the investor owns.

There will continue to be complete and itemised disclosures in all the ways that the absolute transparency of Listing requires including – Company Law; the Listing Rules; the Disclosure Guidance and Transparency Rules; the Market Abuse Regulation; Financial Reporting Requirements; Prospectus Regulation and Regulatory News.

There is also an industry proposal, acknowledged by the FCA, for a bespoke summary known as a statement of operating expenses to be available at point of sale, eg on platforms.

Despite this, the FCA has proposed that mutual funds holding LCICs still have to add up the costs already embedded in share prices and disclose them as if payable again – which is exactly what the Government legislated to end.

The market effect of the current misinformation has been substantial:
• Capital raising has dried up, much of which was primary investment in infrastructure
• Collapse of the role that LCICs play in the urgent need for growth in the UK economy
• Wealth managers moving away from LCICs
• Contribution to the widening of discounts for LCICs
• Discounts attracting takeover bids by hedge fund Saba – fought off inter alia by retail shareholders
• Unlevel playing field between listed investment companies and competing investments
• Unlevel playing field between UK and international listed investment companies

The proposed CCI rules would add additional unnecessary layers of regulation and are more extensive (not less) that the troublesome EU ones being revoked, as well as still being misleading.

We propose LCICs should not be in CCI or should be ringfenced away from rules designed for mutual funds.

An executive summary (14 pages) and a fully argued response with evidence (70 pages) are available.

Please can you support our consultation response which has been written together with relevant industry?

If you want me to forward your name, please email henry@agewage.com and your name will be added to the signatory list. Deadline for doing this is Thursday 20th March.