FCA sets out temporary measures for investment firms' cost disclosure

The FCA will allow investment firms to provide additional information, including cost breakdowns, on their key investor documents (KIDs) as an interim solution to ongoing concerns on cost disclosure.

In a statement published on 30 November 2023, the FCA acknowledged that “for a minority of investment products, the required costs and charges disclosure may not result in representative cost information being published” and that this concern “has been raised in the context of closed-ended funds”. The FCA adds that “further concerns have been expressed” about listed costs that then become aggregated into other products, such as multi-asset funds that may invest in them.

Short term measures 

Whilst work on longer-term reforms to replace the UK PRIIP rules is underway, which includes considering the purpose and usefulness of aggregating a range of costs and charges into a single figure (see our earlier blog post), the FCA states that in the interim, “where listed closed ended funds and funds that invest in them (or manufacturers of such funds) are concerned that the costs required to be disclosed in key information documents do not appropriately reflect the ongoing costs, they can provide additional factual information (as well as the aggregated figure) such as the breakdown of costs to put the aggregate number in context. 

For example, a listed closed ended fund may give a better explanation of costs that are clearly corporate costs. As a result, a fund of fund might seek to explain how its own aggregate figure is affected by the investment company’s cost.”  

The FCA confirmed that, if firms provide further factual information such as a breakdown of the costs to put the aggregate number in context, or include this information in their wider communication documentation, “it will not take enforcement action to the extent that the firm contravenes the restriction on adding further information to the UCITS KIID or the prescriptive requirements of the PRIIPs KID. This also extends to materials issued by MiFID firms that distribute PRIIPs or UCITS.”

The FCA also reminds firms that when considering the presentation of the information, they should also consider their Consumer Duty obligations.  

The FCA explains that these actions should give investment firms greater ability to explain their costs and charges to help consumers make better informed investment decisions.

The statement published on 30 November 2023 is available here.