Cost Transparency Initiative and the Defined Contribution Pensions Template has been saved
Cost Transparency Initiative and the Defined Contribution Pensions Template
How can Deloitte assist in complying with the UK cost transparency standards CTI and DCPT?
- The UK Financial Conduct Authorities (hereafter referred to as “FCA”) Asset Management Market study of 2017 found that institutional investors are finding it challenging to obtain the necessary cost information required to make effective value decisions.
- In order to remedy this challenge, the FCA released PS17/20, finalising the methodologies and rules required for the disclosure and calculation of costs information for Defined Contribution workplace pension schemes. The rules came into effect from 03 January 2018.
- To ensure compliance with disclosure requirements, the Investment Association and the Association of British Insurers worked together to obtain a standardised template known as the Defined Contribution Pensions Template ( hereafter referred to as DCPT) to assist in the flow of cost information from asset managers to pension scheme operators. In the meantime, the FCA convened the Institutional Disclosure Working Group (hereafter referred to as “IDWG”) with an objective to obtain agreement on more detailed cost disclosure templates for use by asset managers when disclosing to institutional investors.
- The IDWG recommended the establishment of an independent working group know as the Cost Transaparency Initiative (hereafter referred to as “CTI”) to curate and update the disclosure framework. CTI has since released industry-ready templates, which can be used for the disclosure of costs and charges to UK institutional investors.
How will asset managers be affected?
- The use of both the DCPT and CTI templates is currently voluntary, however encouraged through pressure from institutional investors.
- The UK House of Commons Work and Pensions Committees’ Twenty-Ninth report recommended that the Government legislate the mandatory use of the CTI disclosure templates for both defined contribution and defined benefit schemes which should be supported by an independent verification process to ensure the quality and timeliness of data is maintained.
- The Local Government Pension Scheme (here after referred to as “LGPS”) Advisory Board requires the mandatory use of the CTI template in order to remain compliant with the voluntary Code of Transparency for LGPS asset managers (here after referred to as “the Code”)
- Products in scope include both funds and segregated mandates whose institutional investors are required by PS17/20 to disclose detailed cost information.
What does this mean for asset managers?
- Asset managers are required to produce more detailed cost disclosures to UK institutional investors with the CTI and DCPT templates than is produced in accordance with other regulatory requirements such as the European MiFID template (hereafter referred to as “EMT”).
- The DCPT and CTI templates should issued periodically (quarterly or annually) on a share class level and are more detailed with a larger number of cost disclosure requirements. The CTI template in particular requires far more detailed cost disclosures including, a breakdown of ongoing charges, securities lending and borrowing charges as well as direct property expense disclosures. Additionally the CTI template provides for the detailed disclosure of transaction costs on an asset class level.
What is the reporting timeline?
- As the use of the CTI template is voluntary, the reporting timeline will be dependent on the cost disclosure requirements of the relevant institutional investors
- Existing signatories to the LGPS voluntary Code of Transparency may continue to use the LGPS template for up to twelve months after May 2019 but are encouraged to use the new CTI framework as soon possible. Any new signatories to the Code will be required to immediately comply with the new CTI framework
- First market feedback received by Deloitte indicates a first production in Q1 2020 based on 2019 data
- The use of the DCPT template came into effect on the 03rd January 2018 requiring periodic disclosure of transaction costs and ongoing charges information.
How can Deloitte help?
- Based on our experience with EPT and EMT with over 180,000 EPT or EMT documents produced on a yearly basis, our experience with MiFID II costs and charges reporting, we have built a specialized and integrated service offering dedicated to complex costs reporting requirements
- Deloitte can help perform data gap analysis compared to existing costs data feeds
- Since the launch of MiFID II, Deloitte has developed substantial capabilities in costs compilation and reporting assembly upon which we can rely to deliver this new service
- Deloitte has developed a transaction costs compilation engine live under both New PRIIPs and Arrival Price methodologies. As the CTI template requires full transparency on transaction costs per asset class, Deloitte can leverage on the market connectivity and flexible outputs of our engine to use such data for CTI reporting
We would be happy to assist you in the compilation of the DCPT and CTI templates for your investment funds or segregated mandates. Please do not hesitate to contact our specialists below.