The UK’s financial
market watchdog unveiled a new round of proposals to simplify investment
disclosure requirements, aiming to make product information more transparent
and engaging for retail investors.

FCA Plans to Cut
“Imprecise” Transaction Cost Disclosures for UK Investment Products

The
proposals build on the Financial Conduct Authority’s (FCA’s) December
2024 consultation on creating a new product information regime for Consumer
Composite Investments (CCIs), a category that includes funds, structured
products, and insurance-based investments that around 12.6 million UK adults
currently hold.

A key
proposal would eliminate requirements for firms to calculate and disclose
“implicit” transaction costs, which the FCA describes as
“imprecise and hard to measure accurately.” The regulator would
maintain disclosure of “explicit” costs like broker fees, exchange
fees, and stamp duty.

“Implicit
transaction costs, including slippage, can be imprecise and hard to measure
accurately,” the FCA stated in its consultation paper. “The bid-ask
spread is determined by market movements and can be largely outside the control
of firms, producing both positive and negative costs.”

This
simplification aims to reduce compliance burdens while ensuring consumers
retain access to the most relevant cost information.

What The Second
Consultation Covers

• Removing
  implicit transaction cost disclosures – Firms would no longer calculate and show
  “hidden” costs like bid-ask spreads when buying/selling investments.
  Only direct costs like broker fees and taxes would be disclosed.
• Simplifying
  cost disclosures – Creating
  one consistent approach to cost disclosure instead of multiple overlapping
  rules from different regulations.
• Handbook
  amendments – Updating
  various parts of the FCA Handbook to replace references to old regulations with
  new CCI terminology.
• Transitional
  provisions – Rules
  for how firms can move from old disclosure documents to the new format during a
  transition period.
• Complaints
  handling for unauthorized firms – New requirements for unauthorized CCI manufacturers to implement
  basic complaints procedures.

Harmonizing Disclosure
Requirements

The
consultation also seeks to align pre-sale and post-sale cost disclosure
requirements that originated in the Markets in Financial Instruments Directive
Organization Regulation (MiFID Org Reg) with the new CCI regime to prevent
duplication and inconsistencies.

“We
want to ensure the disclosure requirements in the MiFID Org Reg do not
duplicate or impose additional requirements to the CCI regime for products
subject to both regulations,” the FCA noted.

Transitional Provisions
and Complaints Handling

The
regulator proposed rules for a transition period during which manufacturers
will have flexibility to continue producing existing disclosure documents or
switch to the new product summary format.

Additionally,
the FCA proposed requiring unauthorized CCI manufacturers to implement
“reasonable and transparent” complaints handling procedures, ensuring
retail investors can register and have complaints addressed “without
unreasonable delay and in a competent, diligent and impartial way.”

In the meantime, the FCA has opened its first overseas offices in the US and Asia to promote cross-border investments. 4o

Moving Beyond EU-Era Rules

The
proposals represent another step in replacing disclosure requirements
introduced across Europe when the UK was an EU member with a system tailored to
the UK market. The regulator wants to take a similar step in the £12 trillion asset management sector, as it announced earlier this month.

“We
want a simpler and more flexible retail disclosure regime that gives consumers
higher quality and more useful information and empowers firms to design more
engaging ways of communicating that information,” the FCA said.

The
regulator estimates the proposals will cost firms approximately £3.2 million
over a ten-year period, primarily for familiarization, legal costs, and
implementing complaints handling systems.

The
consultation remains open until May 28, 2025, with the FCA planning to
issue final rules in late 2025 following further engagement with stakeholders.