A draft Statutory Instrument (SI) proposed by HM Treasury, published yesterday evening (7 October), absolves investment trusts from producing Key Investor Documents (KIDs) and from publishing ongoing costs.
The Draft Explanatory Memorandum, published on the UK Government website, stated that PRIIPs regulation – which was transferred into UK law in 2018 – set out “detailed and prescriptive requirements for disclosing costs, risks and performance which have been criticised by industry for being misleading and burdensome”. “Consequently, the government has committed to repeal and replace the PRIIPs regulation,” it added.
Under EU PRIIPs regulation first introduced in 2014, as well as parts of MiFID published in 2016, collective investment vehicles – which included trusts – were required to produce a KID which included any ongoing charges figures. However, because investment companies are listed publicly on the stockmarket, and their shares are bought at market price, the inclusion of ongoing charges forced the vehicles to disclose costs which didn’t exist.
See also: First reading of the investment trust bill: What will clearer cost disclosure rules mean?
The SI therefore added investment companies to the list of excluded products in the PRIIPs regulation, also excluding them from ‘disclosing’ costs of manufacturing and managing their own shares from cost disclosure requirements set out in MiFID.
“It is broadly accepted by industry and the government that the single aggregated figure that is being produced under current EU-inherited rules is not an accurate representation of the actual cost of investment in shares in an investment trust,” the SI stated.
“Investment trusts, along with persons advising on or selling shares of investment trusts, will not be required to produce the Key Information Document (a standardised information document prepared for products in scope of the PRIIPs Regulation).
“Additionally, investment trusts, and firms investing in them, will not be required to disclose costs and charges relating to investment trusts to clients, pursuant to the MiFID Org regulation.”
See also: Investment trust industry calls on Labour to resolve cost disclosure issue
Bill MacLeod, managing director at Gravis, said this means not only do trusts no longer need to publish a KID or ongoing charges, but the likes of wealth managers, discretionary fund managers and platforms may not publish an ongoing cost, either.
“Furthermore, open-ended funds do not need to aggregate the costs of investment companies – because they won’t exist,” he said.
“This goes further than any of us thought possible and we are thrilled.”
Next steps
Now, the bill must pass through the draft stage and be approved by both the House of Lords and the House of Commons. MacLeod pointed out that, since the mid-1940s, only three bills have ever failed to progress through the houses, so “the chances of success are thought to be very high”.
“There is a light legislative programme, so it is likely to be swift once the draft phase has concluded. We’ll know more about the timing in coming days,” he said.
“Investment companies will be kept within the legislative boundary of the incoming Consumer Composite Investments regime, and it is therefore likely that all market participants will watch carefully as that develops.
“For now, we celebrate the fact the inappropriate and misleading publication of costs is no longer required, and investors can make informed decisions based on accurate information.”
