Yesterday marked the launch of the Cost Transparency Initiative (CTI). The CTI is an independent group working to improve cost transparency for institutional investors. It has the responsibility for progressing the pre-existing work on this issue undertaken by the Institutional Disclosure Working Group (IDWG) which was set up following the FCA's asset management market study (AMMS). The creation of an independent working group was recommended by the IDWG to the FCA to curate and update the disclosure framework. The CTI is supported by the Pensions and Lifetime Savings Association (PLSA), the Investment Association (IA) and the Local Government Pension Scheme Advisory Board (LGPS SAB).
The aims of the CTI are to:
- provide a clear voice for the interests of asset owners as it improves cost transparency;
- run a pilot phase to test the new cost transparency templates and supporting technical and communications materials until January 2019; and
- following the pilot, roll-out the templates to the asset management and pensions industries to encourage fully transparent and standardised cost and charge information for institutional investors.
The CTI is taking applications to participate in the pilot to test the templates with a number of schemes before rolling it out more widely across the industry. The templates comprise:
- a main account-level template which covers most product types;
- a user template summarising the account-level data; and
- three further sub-templates where costs specific to certain asset classes are needed (covering private equities, physical assets and ancillary services or custody).
The FCA notes that the templates were designed to align with the relevant disclosure obligations under MiFID II (although firms are responsible for ensuring they meet all relevant regulatory requirements).
In its recommendations following the AMMS, the FCA stated that it wanted to see more consistent and standardised disclosure of costs and charges to institutional investors. It thought that a standardised disclosure template should provide institutional investors with a clearer understanding of the costs and charges for a given fund or mandate. It remains to be seen whether these objectives will be achieved through this voluntary initiative. The FCA is joining the CTI as an observer; no doubt it will keep a keen eye on progress and how the industry responds. Non-compliance is likely to nudge it towards a regulatory solution.