Investment trusts must be overlooked of looming City guidelines shake-up, say bosses

City bosses have urged regulators to exclude investment trusts from a looming shake-up of rules, or risk further damage to the beleaguered sector.

It follows a difficult few years for London-listed investment trusts, which have struggled to tackle large discounts to net asset value as investor appetite for the sector has waned. 

The Financial Conduct Authority will on Thursday cease taking feedback on major changes to the way it regulates investments sold to the average UK retail investor.

A post-Brexit rules overhaul will see the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation replaced by a new framework for Consumer Composite Investments (CCIs).

The FCA says the new regime will prioritise good outcomes for UK retail investors, who ‘often find current product information documents confusing or overwhelming’.

Investment trusts are quoted companies and therefore already face rigorous cost disclosure rules, bosses say 

It has outlined significant changes to the rules for the way product information is presented, with the regulator moving from ‘an overly prescriptive disclosure regime to a more flexible, simpler approach’.

Investment trust bosses welcomed the scrapping of PRIIPs, which they have blamed for a ‘double-counting’ of costs that has contributed to an investor flight, and left funds sitting on hefty discounts and vulnerable to takeover predators.

But in a joint response to the proposals cosigned by industry leaders, and submitted by Baroness Bowles of Berkhamsted and Baroness Altmann, the FCA was warned its approach will have ‘unintended consequences’.

The industry group said investment trusts are ‘different to the other products and instruments’ covered by the proposed new framework ‘both in the way they operate, and in the way they are governed and regulated’.

They added: ‘They are quoted companies which are already regulated by extensive rules to protect investors, such as company law and listing rules, formal regular reporting, extensive disclosures and the oversight of independent boards.’

The group warned of ‘further damage to the attractiveness’ of the investment trust market and ‘poor consumer outcomes for investors’.

It said: ‘For this to occur in circumstances where [investment trusts] are already subject to rigorous disclosure and governance regimes and subject to daily scrutiny by the stock market, research analysts and investment community focussing on [investment trusts] seems to be grievous.’