Alternative Investment Fund Managers Regulations 2013

Question

Asked by

To ask His Majesty’s Government what assessment they have made of the impact of disclosure obligations under the Alternative Investment Fund Managers Regulations 2013 on UK-listed investment companies, in terms of competition, consumer duty, exclusion from investor platforms, and funding crisis for such companies investing in UK small growth businesses, renewable energy and infrastructure.

My Lords, the Government and the Financial Conduct Authority understand industry concerns regarding investment company cost disclosure requirements. The issue sits across multiple areas of legislation and we are working at pace to repeal retained EU law under the smarter regulatory framework, enabling the FCA to deliver UK-tailored rules. On the alternative investment fund managers directive specifically, work has already started on plans for reform, with a discussion paper issued by the FCA in February.

I thank my noble friend. However, does she recognise that an important UK financial sector is being undermined by selling pressure based on exaggerated reported charges figures? These listed, closed-ended investment companies and their institutional investors support British companies in areas including battery storage and wind and solar farms, and offer particularly suitable vehicles for pension funds and other investors in sustainable growth. However, they are deterred by misleading aggregated costs, including by retail investor platforms. Has the Minister’s department urged emergency action following FCA failure to protect the market stability, international competitiveness, fair competition and the consumer duty?

My Lords, I agree with my noble friend in recognising that investment trusts play a vital role in raising capital for infrastructure projects across the UK. The FCA is of course independent, but I understand that it is taking forward work to look at what can be done in this area while we take forward the wider programme of measures to repeal retained EU law and replace it with UK rules that will help to address the issue that she raises.

Does the Minister recognise that the debate around aggregated cost disclosure and associated errors arising from misapplied legislation has highlighted difficulties of amending retained EU law rapidly and the absence of FCA powers to amend legislation or issue useful forbearance notices when needed, given concerns about FiSMA Section 138D on right of action? Can the Minister explain whether His Majesty’s Government are considering how emergency action or forbearance can safely be introduced to avoid being in a tighter static regulatory bind than when we were in the EU, where ESMA had more flexibility and power?

I reassure the noble Baroness that the FCA has the appropriate powers to implement regulatory forbearance where it considers it appropriate, but it must operate within the legal framework and it does not have the powers to amend legislation—that is for this House to do. It is right that forbearance can only be a temporary, short-term fix. That is why the Government are committed to repealing and replacing retained EU law, including legislation related to cost disclosure, under our smarter regulatory framework.

My Lords, does my noble friend recognise that there really is a win-win situation here—a proven method of investment, offering individuals an opportunity to invest in new technologies relatively safely and new sources of funding for those technologies? The only thing standing in the way is the FCA. Where there is a will, there is a way, so could my noble friend please ask the FCA to engage in some digital extraction?

I reassure my noble friend that the FCA is indeed engaged in this issue, as are the Government. There are many problems with inherited EU financial services rules and we have set out a programme of work to look at how we can repeal them and replace them with UK-appropriate measures. These include the PRIIPs rules, which affect this issue, and the Government have set out our plans to repeal these measures and replace them with FCA rules, as soon as possible.

My Lords, the primary duty of the FCA is to deliver stability, but the noble Baroness, Lady Altmann, raising this issue today is not the first time that concerns have been raised about apparent instability in certain markets. Does the Minister remain satisfied that the FCA has the tools and expertise it needs to uphold its duties, and is she confident that it has the capacity to meet its growing workload?

My Lords, I do remain satisfied and I believe that the Financial Services and Markets Act, which passed through this House earlier this year, updates the tools and framework for the FCA to do its job, now that we have left the EU.

My Lords, the noble Baroness, Lady Altmann, has a Private Member’s Bill before this House, which would create the proper framework for the important investments that she has been discussing. I hope the Government will support her Bill, but would the Minister also introduce a statutory instrument to the House, as proposed by my good noble friend Lady Bowles on many occasions, which would rectify the immediate and emergency situation that is discouraging investment in critical activity in this country?

My Lords, I have not yet seen the details of my noble friend’s Private Member’s Bill, but I will look at it closely. The noble Baroness, Lady Kramer, is right that the noble Baroness, Lady Bowles, has raised this in the past and I thank her for her work in this area, including her detailed suggestions to reform MiFID, which the Government are considering. As I have said, FSMA 2023 gives us the powers to repeal and replace retained EU law in a more agile way. We intend to use those powers to solve the issue before us.

Will the Minister tell us what consultation has taken place with the Financial Services Consumer Panel and other consumer groups on this?

My Lords, the operation of the consumer panel and other panels of the FCA is a matter for the FCA. I am sure that it draws on all its different panels, as appropriate, when taking forward its work programme.

My Lords, one recognises the important issue being raised, but the context has to be understood of a financial services industry that does not have an unblemished record, in terms of the personal pensions and endowment insurance scandals. The FCA has to recognise that it cannot take the good will of the industry towards the client as given.

My Lords, some of the issues that the noble Lord sets out are why it is important to take forward the programme of reform in a measured way that takes into account the interests of all involved in the sector, whether industry or consumers, and makes sure that we have proper consultation in everything that we do.