REGULATION/LEGISLATION

FCA proposes standardized disclosure of transaction costs for retirement plans

The Financial Conduct Authority published proposed rules and guidance to improve the disclosure of transaction costs in corporate retirement plans.

In a consultation paper published Wednesday, the U.K.’s financial watchdog said it wants to standardize the disclosure of costs incurred by retirement plan investments by requiring money managers to disclose aggregate transaction costs to retirement plans that directly or indirectly invest in their strategies. The FCA is also proposing that managers provide the breakdown of transaction costs on request, split into categories such as taxes and lending fees.

Independent governance committees and trustees at these plans are already required to request and report on transaction costs as much as possible.

“Without a matching duty on asset managers to provide full disclosure of these costs in a standardized form, scheme governance bodies may not be able to perform their function of assessing whether scheme members are receiving value for money,” the consultation paper said.

Proposals include an obligation on service providers to share information upon request. The FCA is proposing that transaction costs are disclosed based on a comparison of actual prices with the value of the asset immediately prior to the trade order. It said only two pieces of information are necessary: the actual execution price, and the time the order enters the market.

The FCA considers a number of issues around calculating the transaction costs of certain asset classes, with some requiring additional rules or guidance. One proposal relates to foreign-exchange costs. To achieve full, transparent reporting, the FCA proposes that a “consolidated foreign-exchange rate should be used that reflects the rate available in the market at the time of the order. This should be the case irrespective of whether there is an agreement in place with a single counterparty to undertake all foreign-exchange transactions. This should make clear to governance bodies the costs that such arrangements are incurring.”

The FCA also acknowledges that DC plans invest in illiquid assets, particularly real estate. As the market develops, DC plans might invest in more types of illiquid assets. “As such, the rules set out how we would see the approach working” for these types of assets.

Comments on the paper are due Jan. 4, and it is available on the FCA’s website.