Progress within the financial services industry is being hampered as firms feel they cannot criticise the regulatory framework for fear of “retaliation”, according to Sharon Bowles, a member of the House of Lords.
Bowles, a member of the House of Lords financial services regulatory committee, told FT Adviser people in financial services are wary of condemning regulation.
She said: “With the FCA in particular, but regulators more generally, no public relations department or government relations department at a financial services company will sign off a comment that is critical, for fear of retaliation from the regulator.
"This means discussions around the big questions in the industry are out of the public eye and that isn’t great for the competitiveness of the UK.”
Bowles has tabled a private members bill around the costs and disclosures associated with investment trusts.
A bill to deal with this issue had been tabled during the last parliament, though its progress was halted when the election was called.
The issue is around how investment trusts are required to disclose the various costs of ownership.
Bowles and others in the industry believe the way the FCA presently requires costs to be disclosed makes the cost of ownership for multi-manager funds look higher than they actually are.
This dissuades the managers of those strategies from choosing investment trusts for their clients, and damaging the prospects for the sector.
Investment trusts are companies in their own right and listed on the stock exchange.
The debate centres on whether investment trusts should be regulated in the same way as stock exchange listed businesses or as collective investment vehicles, the latter being the way open-ended investment funds are regulated.
Ben Conway, chief investment officer at Hawksmoor, a wealth management business, said: “The current rules make our multi-asset funds look more expensive than they actually are if we have investment trusts in them, and that has commercial consequences for us.
"Consumer duty is supposed to be about making advisers focus on value, but the easiest way to express that is to buy the cheapest product.”
Conway said the Mifid rules “are quite clear about what costs have to be disclosed, the rule is that the costs that come directly from an investors capital have to be disclosed".
He added: "The FCA have wrongly interpreted this for investment trusts because they are focused on the net asset value, but the client’s capital is not the net asset value its the share price.”
Mifid rules
During her time in the European parliament Bowles was a member of the Economic and Monetary Affairs committee which worked on the scrutiny of the Mifid rules.
Her view is that the issue of cost disclosure is not a problem with the Mifid rules, “but with how the FCA are interpreting them".
She said: "The FCA believes the net asset value of an investment is the most important number. But investors in an investment trust don’t buy or get the net asset value, they pay the share price, the same as with any other stock market investment.
