UK Financial Conduct Authority: Statement On Forbearance In Relation To Investment Trust Disclosure Requirements

This statement sets out our forbearance given the Government’s intention to exclude some investment trusts from the PRIIPs Regulation and other assimilated law.

The Government is committed to replacing EU-inherited disclosure regulation with a new framework tailored to UK markets and firms. In November 2023, the Treasury issued draft legislation on the repeal and replacement of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation with a new framework for Consumer Composite Investments (CCIs). Treasury will lay legislation in H2 2024 to provide us with the additional powers to deliver this reform.

Based on concerns highlighted by industry representatives about the operation of current costs disclosure requirements under assimilated law, and how it is affecting the closed-ended listed investment fund sector, the Government has decided to take more immediate steps.

The Government has announced it will, in H2 2024, simultaneously lay the legislation to exempt closed-ended UK-listed investment funds from the requirements of the current PRIIPs Regulation and parts of Articles 50 and 51 of the MiFID Org Regulation.

That exemption will remain in effect until the start of the new UK retail disclosure framework, subject to Parliamentary approval of the CCI legislation and the FCA’s consultation process for the CCI regime.

New regulatory forbearance

We previously issued forbearance in November 2023 to give investment trusts greater ability to explain their costs and charges to consumers. The current disclosure requirements are set out in legislation, under assimilated EU law. This limits our ability to make changes or disapply current rules.

However, considering the Government’s announcement that a statutory instrument will be laid imminently to change the rules, we are immediately applying new regulatory forbearance to provide certainty for firms ahead of the statutory instrument taking effect.

From 19 September 2024 until legislation to amend the PRIIPs Regulation comes into force, closed-ended investment funds whose ordinary shares (of each class if there is more than one) are admitted to trading on a UK regulated market or a UK multilateral trading facility may choose not to follow the requirements of the PRIIPs Regulation and associated technical standards.

They may also choose not to follow the requirements of Article 50(2)(b) and Article 51 of the MiFID Org Regulation.

We confirm that we will not take supervisory or enforcement action if a fund chooses not to follow those requirements.

Our forbearance will apply until the Government’s statutory instrument to exclude closed-ended UK-listed investment funds from the PRIIPs Regulation and MiFID Org Regulation takes effect, as after that date those funds will no longer be bound by the requirements of that legislation.

Notwithstanding our commitment not to take supervisory or enforcement action, we cannot repeal or disapply the law and the regulations remain in force during this period. Firms may need to consider any other implications that not complying with the legislation may have for their businesses.

Firms must still continue to comply with other relevant rules and regulations. This includes the Consumer Duty and Principle 7, which requires firms to ensure communications are fair, clear and not misleading. Firms also need to comply with the requirements in COBS 2.1.1R to act honestly, fairly and professionally in accordance with the best interests of clients. We can act if firms do not meet these expectations.

Longer term reforms

We intend to consult on proposed rules for the CCI regime this autumn. We aim to finalise the rules in H1 2025, at which point firms will be able to begin transitioning to the new regime.

The proposed new regime is intended to better cater for a variety of products and investment vehicles, including closed-ended UK-listed investment funds, while still ensuring consumers receive appropriate information to allow them to make informed choices about CCI investment opportunities.

This process will allow the new CCI regime to be proportionate and address concerns that have been raised related to closed-ended UK-listed investment funds.