On 7 November the Financial Conduct Authority (FCA) launched the Cost Transparency Initiative (CTI). The CTI will take further the work already undertaken by the Institutional Disclosure Working Group (IDWG), aimed at improving cost transparency for UK institutional investors.
The CTI will be supported by the Pensions and Lifetime Savings Association, Investment Association, and Local Government Pension Scheme Advisory Board in its efforts to set up consistent and standardised disclosure of costs to institutional investors.
The CTI’s main aims include:
- providing a clear voice for the interests of asset owners as it improves cost transparency;
- running a pilot phase to test new cost transparency templates and supporting technical and communications materials; and
- following the pilot, rolling-out the templates to encourage fully transparent and standardised cost and charge information for institutional investors across the full market.
The IDWG has already published example templates, which the CTI is using for a pilot test before being rolled out as CTI tools. Once the templates become CTI tools, they will be updated periodically. These templates are designed to help fund managers to report the many costs incurred during the investment process, and include:
- main account level templates covering most products;
- user templates at an account level showing key data, segmented into asset class, manager etc.; and
- sub-templates for certain asset classes including:
- Private equities
- Physical assets
- Ancillary services
The usefulness of these templates in terms of increasing transparency and comparability as between managers will, of course, depend on whether they are used consistently, and some industry participants have questioned whether this will only be possible with compulsory rather than voluntary disclosure. This question, as well as the role of the FCA going forward, was specifically been raised by the Association of Member Nominated Trustees and campaign group the Transparency Task Force in a joint statement earlier this month. Though both welcome the CTI as having the potential to be a positive step forward, commenting on the FCA’s role in particular, they stated that: “Given the importance of consumer protection to the FCA’s statutory remit we believe the regulator should be an active driver of the agenda and not a mere onlooker.”
In the meantime, ClearGlass, a new costs data collection and analysis platform, was launched on 9 November. ClearGlass was established by Chris Sier. who led the IDWG which aided the FCA in creating the new templates. ClearGlass will use the FCA templates in an attempt to offer asset owners better access to cost information from their asset managers. It will be interesting to see how the market continues to react to the CTI, and how many funds sign up to ClearGlass or other intermediaries established to provide a similar service.
If you have any queries regarding the CTI or would like more information get in touch with Karen Fountain or your usual Brodies contact.
On December 3, 2018