Government has recognised the need for immediate action on the cost disclosure issue plaguing the investment company sector and said the Financial Conduct Authority (FCA) is considering an ‘interim solution’ as it looks for a long-term fix.

In a policy note accompanying HM Treasury’s draft policy on retail disclosures, the government said it had noted stakeholder’s concerns about current requirements, which call for investment companies to disclose aggregated fees.

According to the note, the FCA will ‘in due course’ set out further detail on their proposed rules for the new retail disclosure framework, including cost disclosure.

However, the hard-fought campaign on cost disclosure has proved its worth as the treasury has acknowledged the need for swift action and said the FCA is also considering interim solutions to ‘mitigate the impacts on the investment company sector in the short term as the government acts to implement a long-term legislative solution to the issue’.

Richard Stone, chief executive of the Association of Investment Companies (AIC), welcomed the news ‘that powers will be handed to the FCA to deal with the pressing issue of cost disclosures’.

The chief executive said he would be looking at the details of the draft legislation ‘to ensure that the powers handed to the FCA are wide enough’.

 The policy note also highlighted an intention to bring UCITS funds, which are currently exempt, within the same legislation.

 ‘It is vital that we create a level playing field for cost disclosure between investment companies and open-ended funds,’ Stone commented. ‘The new regime must give investors the information they need to make informed decisions without any bias against investment companies and we look forward to working with the government on this.’

Members of the industry, however, are keen to stress that the cost disclosure issue is wider than EU-inherited PRIIPs regulation, which the draft policy is replacing.

They said the origination of the problem lies with an earlier piece of regulation, AIFMD, which was introduced in 2013. This is an EU law designed to protect investors in lightly regulated funds, including UK investment companies, designating them alternative investment funds (AIFs).

In light of this, the subsequent regulations of Mifid II and PRIIPs has meant that investors in investment companies are obliged to disclose aggregated fees because of their AIF status.

Baroness Ros Altmann, the consumer champion and former pensions minister, submitted a private members bill to remove investment companies from the Alternative Investment Fund Managers Directive (AIFMD) regulation.

The bill, which was one of 25 bills selected from a competitive ballot, has its first reading in the House of Lords on Wednesday afternoon.

The FCA will publish a consultation on their draft rules to replace the PRIIPs Regulation, and certain MiFID provisions related to cost disclosure, in due course.

HM Treasury intends to legislate in 2024, subject to Parliamentary time.