Brokers delist investment trusts and ETFs in face of new rules

Hargreaves Lansdown and Tilney are among those to suspend trading in non-complia

UK brokers are in the process of reviewing the investment trusts and exchange traded funds available on their platforms to ensure they comply with a new regulatory requirement that came into force at the start of 2018.  

Those that do not comply with the new Priips rules are being suspended at least temporarily, with Hargreaves Lansdown having to delist almost 300 investment trusts and 900 ETFs. 

The Priips regulation (packaged retail insurance-based investment products) has been designed to ensure retail investors better understand the risks and costs of a particular investment before they buy it. 

This takes the form of a user-friendly Key Investor Document or KID detailing the investment’s features including costs, risks and potential rewards - something that has not previously been required of listed investments, including investment companies and ETFs.  

Annabel Brodie-Smith, communications director at the Association of Investment Companies, says: ‘For most investment companies which do not have a KID this is a transitional issue which is being sorted out swiftly following the festive season.  The most recent guidance on Key Information Documents came out on 20 November, so there’s been a lot of work to do in a short time period.’

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As a result of the changes, Hargreaves Lansdown removed 296 investment trusts from its website. It said 200 of these are not expected to relist as they are non-European domiciled (mostly based in the US) and are therefore unlikely to be concerned about complying with the new rules anyway.

The remain 96 suspensions, which are European-based, have already reduced down to 86 as management companies have produced or completed the documentation needed, says Danny Cox, head of communications at Hargreaves. 

‘We knew there would be a lot that weren’t going to produce KIDs because they are US domiciled and are not bothered about availability in Europe. But with the others I’m expecting it to be days rather than weeks before the issue is resolved,’ he comments. 

Brodie Smith points out that some investment companies which are winding up may have chosen not to produce a KID as they have to state a recommended holding period; others may have chosen not to issue a KID as they do not want to be made available to retail investors. In other cases the investment company has issued the KID but it has not found its way onto the platform yet.

She says further analysis indicates that the total number of UK-listed investment trusts yet to provide a KID is just 66 - amounting to 17 per cent of the investment trust universe – and of those, half are venture capital trusts. 'There are virtually no well-known names among the rest and some are really obscure,' she adds.

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Most of the 900 suspended ETFs on the Hargreaves website are US-domiciled and are not expected to relist as the providers are not sufficiently interested in this market. ‘They are still on the platform but not on the website; this means existing investors cannot add more money, but they can sell if they do it over the phone,’ says Cox. 

At Tilney, managing director Jason Hollands says that ‘the KIDs are arriving thick and fast’. 

He explains: ‘For our online investment service we used a third-party data vendor to supply the links to KIDs prior to purchase. We are going through these to identify cases where PRIIP compliant documentation is not in place, and where we find this is not the case, we will temporarily suspend dealing.’

Hollands says Hargreaves has been relatively hard-hit compared with many competitors because it offers access to a larger number of US domiciled ETFs and investment companies not available on the Tilney site. ‘Overall it is a handful of trusts that have been impacted,’ he says.

The Priips changes were originally scheduled for the end of 2016 but were then delayed by a year - aligning them with extensive European Union regulation known as Mifid II, which came into force yesterday, 3 January, and is focused on improving efficiency and transparency in financial markets. 

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