Edinburgh investment giant Abrdn has welcomed the news that the UK government and the Financial Conduct Authority (FCA) have temporarily exempted investment trusts from complying with cost disclosure requirements.

The UK government and FCA announced plans to reform UK retail disclosure rules and said they “will temporarily exempt investment trusts from assimilated EU law requirements.”

Abrdn is one of the largest managers of investment trusts — also called closed-end funds — in the world. In total, the firm manages and administers £506 billion of assets.

Abrdn has the fifth largest closed-end fund business globally by assets under management, with £23 billion of assets, and third largest by number of closed-end funds with 32 listed closed-end funds/investment companies.

Edinburgh-based Baillie Gifford, another major player in investment trusts, would not comment beyond saying it welcomed the exemption “as a step in the right direction.”

The FCA said: “Investment trusts are a well-established type of investment vehicle in the UK representing over 30% of the FTSE 250 and investing in over £260 billion in assets in total. They can be a valuable source of investment funding to both conventional and emerging asset classes.

“The valuations and discounts of investment trusts may be influenced by many factors, independent of regulation, including investment performance, overall market sentiment and the interest rate environment.

“In response to the feedback from the sector, the Government will lay legislation to exempt listed investment trusts from the current PRIIPs Regulation, as well as make other necessary amendments to other EU-assimilated law.

“This approach is intended as an interim measure, and investment trusts will be included within the scope of the future UK retail disclosure framework.

“The proposed new CCI (consumer composite investments) regime is intended to better cater for a variety of products and investment vehicles, including investment trusts, while still ensuring consumers receive appropriate information to allow them to make meaningful choices between investment opportunities about composite consumer investments.”

Christian Pittard, Head of Closed-End Funds at Abrdn, said: “We welcome this move by Government and the FCA to address unfair and distortive rules that have crippled investment trusts.

“With the FCA confirming that it will not take supervisory or enforcement action if a fund chooses not to follow the cost disclosure requirements, all eyes will now be on data publishers at a time when what the industry and investors really need is consistency.

“The UK’s investment trust sector is one of the jewels in the crown of its financial services industry – with a 150-year plus track record of channelling capital into productive areas such as high growth companies, infrastructure, greener energy, and housing.

“As one of the largest investment trust managers in the world, we believe this decision rightly reflects the Government’s stated aim of making the UK an attractive place to invest and we are encouraged by today’s announcement to make these measures permanent.

“We look forward to working with Government and the FCA on their consultation and the appropriate, improved cost disclosure going forward.”

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “This leap forward on cost disclosure is great news for investment companies and their investors. The temporary suspension of the rules paves the way for a permanent solution to this long-standing and damaging problem.

“It’s good that the Treasury and FCA have recognised that the current cost disclosure regime is not working. The AIC has lobbied tirelessly on this issue and it’s encouraging that the Labour government has acted so swiftly.

“We look forward to working with the FCA as it consults on the new Consumer Composite Investments (CCI) regime. It’s vital that these new rules recognise the unique characteristics of investment companies, permanently end misleading cost disclosures which distort the market, and enable investors to make better informed decisions.

“Investment companies are a great UK success story and have a vital role in bridging the gap between private assets and public markets. Ending misleading cost disclosures will enable us to continue delivering for investors and make a critical contribution to the economy as the government drives forward its ambitions for growth, investment and wealth creation.”

The FCA added: “The Government and FCA are committed to the ongoing reform programme to reinvigorate our capital markets. Ensuring retail investors can make informed investment decisions is an important part of ensuring healthy capital markets. As part of this, the Government and FCA are committed to replacing EU-inherited consumer cost disclosure regulation with a new framework tailored to UK markets and firms.

“The Treasury consulted on replacing the EU-inherited Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation with a new framework for Consumer Composite Investments (CCIs). HM Treasury will lay legislation as soon as possible to provide the FCA with the appropriate powers to deliver this reform. The new CCI regime will deliver more tailored and flexible rules which will address concerns across industry with current disclosure requirements, including for costs.

“The UK’s new retail disclosure regime is expected to be in place in H1 2025, subject to Parliamentary approval and the FCA consultation process. The FCA intends to consult on proposed rules for the CCI regime this autumn.

“The UK’s new framework for CCIs will support investors to better understand what they are paying for and the value they are receiving through the distribution chain. The FCA’s consultation process will provide an opportunity for a full range of stakeholders to provide feedback on the new regime, to ensure it works as intended.

“The intent is that the new CCI framework will be proportionate and will allow more bespoke arrangements to address concerns that have been raised with the current PRIIPs framework.

“The Government and FCA also welcome the feedback from the investment trust sector regarding the operation of current cost disclosure requirements and how they might be impacting the investment trust sector specifically …

“In light of this announcement the FCA will immediately apply new forbearance to provide certainty for firms ahead of this legislation taking effect. From 19 September until the legislation to amend the PRIIPs regulation for investment trusts comes into force, the FCA will not take supervisory or enforcement action if an investment trust chooses not to follow the requirements of the PRIIPs regulation and associated technical standards, and/or the requirements of Article 50(2)(b) and Article 51 of the MiFID Org Regulation. This is an interim measure, pending longer term reform.”