These updates are designed to enhance transparency, improve consumer understanding, and streamline regulatory requirements.

In recent developments, the Financial Conduct Authority (FCA) has put forward significant proposals aimed at simplifying transaction cost disclosures and revising MiFID regulations. These updates, which impact the financial services industry, are designed to enhance transparency, improve consumer understanding, and streamline regulatory requirements. Here’s a breakdown of what you need to know:

I. Transaction Cost Simplification

The FCA is proposing a simplification of the transaction cost disclosure process under the Collective Investment Scheme (CCI) regime. One of the key changes is the decision to exclude the calculation and disclosure of implicit costs, such as price slippage, which are often difficult to measure accurately.

Instead, the FCA will shift its focus to explicit costs—such as brokerage fees, exchange fees, and taxes—which will now be clearly outlined and presented separately. This is expected to enhance transparency and provide consumers with a clearer understanding of the costs involved in their investments.

For products that have been active for more than 36months, firms will be required to use an average cost for the disclosure of transaction costs. For newer products, however, firms will need to provide a reasonable estimate. This new approach ensures that the information disclosed is both clear and relevant, reflecting the longevity and the specific characteristics of each investment product.

Furthermore, the FCA plans to align MiFID (Markets in Financial Instruments Directive) disclosure rules with the CCI regime. This change will remove the requirement for firms to disclose post-sale implicit costs for CCIs, further simplifying the process.

II. MiFID Rules Update

In March 2024, the UK Treasury announced plans to remove the MiFID Org Regulation as part of the ongoing review of MiFID II. The consultation document CP24/24 proposes moving the requirements of MiFID OrgRegulation into the FCA Handbook, thereby simplifying the disclosure of total costs, including management, transaction, and other related expenses.

Notably, Article 51 of the MiFID Org Regulation, which pertains to additional costs, will be removed. Instead, these costs will be covered under other provisions within the updated framework. This change is designed to simplify the regulatory landscape, making it easier for firms to comply with the rules and for consumers to understand the costs associated with their investments.

As part of the update, firms will be required to disclose CCI costs consistently across all platforms. This will ensure greater clarity and transparency, helping consumers make more informed investment decisions.

III. Next Steps and Timeline

The consultation period for these proposals is open until May 28, 2025, and the FCA has indicated that the final rules will be published by the end of 2025. As we await the final outcome, it is important for firms to begin preparing for the changes and consider how these updates will impact their current practices.

At AlphaOmega, we are committed to keeping you informed about these developments. If you have any questions or need further clarification on how these proposals may affect your business, please do not hesitate to reach out to us.

For more information or assistance, feel free to contact us.