FCA publishes proposals on transactions cost disclosure

The Financial Conduct Authority has today published proposed rules and guidance aimed at standardising the disclosure of the transaction costs incurred by pension investments.

Currently, independent governance committees (IGCs) and trustees are required to request and report on transactions costs as far as they are able but asset managers are not required to provide full disclosure of these costs in a standardised form.

To ensure that IGCs and trustees receive information about transaction costs, the FCA is proposing to place a duty on asset managers to disclose aggregate transaction costs to pension schemes that, directly or indirectly, invest in their funds. The FCA has also proposed that asset managers provide the breakdown of transaction costs on request with the total broken down into categories of identifiable costs which could include specific costs like taxes and securities lending costs.

The proposed new rules will deliver a high degree of consistency in how transaction costs are reported and give governance bodies confidence that the information presented to them contains a comprehensive assessment of costs.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:

"IGCs are already seeking to make pension schemes work better for their members. The proposals we are announcing today will allow IGCs to see fully the transaction costs that their funds pay and enable them to make better decisions about how they get value for money for their members."

To ensure consistency across the market, the FCA also proposes that the calculation uses a methodology for evaluating transaction costs, called the slippage cost. This compares the price at which a transaction was actually executed with the price when the order to transact entered the market. The time an order enters the market should be captured by an order management system and this time can then be used to identify the price of the asset.

Firms who are unable to provide transaction cost information for all of the assets in a scheme will have to disclose this clearly to the governance body with an explanation of why it has not been possible to provide the information.

The consultation is open until 4 January 2017.

Notes to editors

  1. CP16/30: Transaction cost disclosure in workplace pensions.
  2. DP15/2: Transaction costs disclosure: improving transparency in workplace pensions.
  3. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  5. Find out more information about the FCA.