Listed Investment Companies (Classification etc) Bill [HL]

Third Reading

Motion

Moved by

That the Bill do now pass.

My Lords, I wish to make a few thanks and remarks, but first I must declare my interest as a director of the London Stock Exchange and as a long-term investor in listed investment companies. I thank everyone involved in the drafting and discussions of this Bill, including the Minister—the noble Lord, Lord Livermore—who has been supportive on the issue, all noble Lords who have supported the Bill during its progress, the Public Bill Office, Nigel Farr of HSF, the AIC, many industry specialists who have contributed to the drafting, and consumer organisations such as Which? and ShareSoc which support the Bill and the wider cost disclosure campaign. I also thank journalists who have put the issue in the public eye. The noble Baroness, Lady Altmann, who is unable to be in her place today as she is recovering from a shoulder operation, trod a similar path with her Bill in the previous Session and has stood with me on this issue through many a debate and meeting. I also thank in advance the honourable Member for Hazel Grove, Lisa Smart, who is sponsoring this Bill in the other place.

Yesterday was the deadline for submission to the Treasury’s call for evidence on growth and competitiveness in financial services. I cannot help but say that it seems peculiar to be hunting for changes to promote growth when there is low-hanging fruit available to end the market disruption for listed investment companies that has resulted in more than £20 billion and counting of lost investment in the UK economy over the past two years. HMT or the FCA could lean on platforms and the Investment Association to get fully behind the changes for listed investment companies made by the legislative actions and forbearance in September. Instead, it seems they await the slow turning of the handle of consultation on, rule-making for and embedding the entire PRIIP legislation, which will take well into 2027 with tens of billions more pounds of lost investment in UK infrastructure.

By way of help, the chair of the FCA did finally confirm to the Lords Financial Services Regulation Committee on 13 November that, for listed investment companies,

“ongoing charges are not deducted from the share price”,

and that,

“as a fact, there is not a deduction from the share price”.

Yet platforms such as Hargreaves Lansdown still insist that a misleading disclosure about cost deductions from the investor must be entered or they will block retail purchase. I am told that they claim that they are urged to do so by the Investment Association, which is the association for the dominant open-ended fund sector, not for listed investment companies. The open sector is a sector that may relish scooping up some of the lost equity investment for itself but, make no mistake, it cannot replace the lost billions in social and environmental infrastructure. While this regrettable situation continues, I believe this Bill still has an important role to play.

My Lords, I shall say a word in support of the noble Baroness, Lady Bowles, before we wave this Bill goodbye. The investment trust movement is a proven success story in this country but has been uniquely caught up in the PRIIP regulations. For three or four years we have been trying to find a way through that thicket.

I appreciate that the noble Lord, Lord Livermore, and the Government have produced some temporary forbearance regulations that are now in effect, but that is only a quarter of a loaf. To rebuild the sector, we need new investment trusts, but no one will launch investment trusts with only temporary relief that might at any moment be withdrawn. Therefore, while of course the industry is grateful to the Government for what they have done, it is only a sticking plaster.

The worrying aspect is that, now that we have forbearance relief, there will be no pressure on the regulators to make their mind up and the hitherto glacial progress will proceed even more slowly. I hope the Minister might take the noble Baroness’s Bill, stick it in his back pocket and say, “It has no commencement date but, if you don’t get on and sort your mind out, we’ll put a commencement date on it and bring it in”.

My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, who has argued so cogently and cohesively for the Bill.

Finding ourselves in this position appears to be a mistake, and it is essential that we take the right steps to ensure that disclosures relating to closed-end listed investment companies are presented accurately. This is not merely a point of minute detail. As the noble Baroness has argued so diligently, the current situation has led to the loss of tens of billions of pounds of potential investments, resulting in economic damage to our country.

The Government tell us repeatedly that they want growth, and therefore the British people expect them to take the right steps to foster that growth. Indeed, as the Minister highlighted at Second Reading, EU-derived legislation related to retail disclosure is not fit for UK markets. We understand that the Government have committed to making changes to address and resolve these issues, and His Majesty’s Official Opposition greatly hope that the Government will continue to listen to the noble Baroness in a co-ordinated and collaborative effort to foster the growth that is essential if we are to deliver optimal outcomes for everyone across the country.

My Lords, I congratulate the noble Baroness, Lady Bowles, on her Bill, and I thank her for her engagement on this issue so far. The Bill seeks to address an important concern for the sector, and I am grateful for the work of the noble Baroness and other noble Lords to raise awareness of the issue. As she has rightly identified, the previous legislation relating to retail disclosure was not fit for purpose. That is something on which the Government, the Financial Conduct Authority and many Members of this House agree, and it is an area in which this Government have already taken forward action to address industry concerns.

Only last month, the Government passed legislation to replace the package retail and insurance-based investment regulations with a new framework for consumer composite investments. That has provided the FCA with the appropriate powers to deliver a new disclosure regime that is more proportionate and tailored to UK markets and firms, including for investment trusts.

The Government also heard concerns from industry that the cost disclosure requirements have had an unintended consequence for the investment trust sector and its ability to fundraise. As a result, the Government took exceptional action to temporarily exempt investment trusts from cost disclosure regulation, with legislation passed last month to that effect.

Given that investment trusts offer their products to retail investors, it is right that they must provide tailored disclosure on costs, risks and performance to support consumer understanding. Together, the instruments that the Government have already passed will enable the FCA to holistically reform cost disclosure, addressing issues with current disclosure requirements. Ensuring that retail investors can make informed investment decisions is a key component of healthy UK capital markets.

I am grateful to the noble Baroness for her continued championing of the investment trust sector and for bringing her concerns to the Government’s attention. I hope she will recognise the genuine difference that her campaign has made. However, given the Government’s legislative interventions to resolve this issue, I am afraid I must express reservations on behalf of the Government on the Bill.

Bill passed and sent to the Commons.