Investment trusts will not have to follow EU-era rules that artificially inflated their costs, as the government and City regulator grant a special exemption for some of London’s listed funds.

The old rules dictated that investment companies must add their corporate costs on top of their management charges in a reported “ongoing charge fee”, as if they were paid directly by the shareholder. Critics argued this amounted to double-counting and in some cases made investment companies “uninvestable”.

The suspension of the rules represents a “leap forward”, Richard Stone, chief executive of the Association of Investment Companies, the industry body, said.

“It’s vital that these new rules recognise the unique characteristics of investment companies, permanently end misleading cost disclosures which distort the market, and enable investors to make better informed decisions,” he said. “Investment companies are a great UK success story and have a vital role in bridging the gap between private assets and public markets.”

The Treasury said it would lay legislation for its new framework for Consumer Composite Investments (CCI) “as soon as possible”.

Changing how these costs are reported could revive demand for investment trusts among big, cost-conscious investors such as pension funds, where a drop-off in demand has pushed shares in investment companies to trade 5 per cent below the value of their net assets on average.

Gavin Trodd, an analyst at Deutsche Numis, the broker, said the reform could remove one of the biggest headwinds for the sector, particularly for alternative asset funds that had been sold or overlooked by large wealth managers and multi-asset funds.

The government and the Financial Conduct Authority, the City regulator, said the new regime, starting in the first half of next year subject to parliamentary approval and the consultation process, would deliver “more tailored and flexible rules”.

The reforms are part of a wider programme to help reinvigorate the UK’s capital markets. Investment trusts are among some of the oldest companies listed in London, making up more than 30 per cent of the FTSE 250 index and together investing in more than £260 billion of assets.

Trusts have been increasingly reliant on buybacks to help support their share prices, having spent more than £2 billion on their own shares this year, the highest on record.

Private equity and infrastructure-focused investment trusts have been hit particularly hard by the cost issue. Infrastructure funds have spent almost three years without raising any capital on the primary market, according to Abrdn, the asset manager, putting it on track for the longest drought since the 2008 financial crisis.

Christian Pittard, head of closed-end funds at Abrdn, said the rules had “choked” flows into investment trusts, which invest billions of pounds into critical projects such as renewable energy infrastructure.

“Cost disclosure rules, which have amounted to a distortive double counting of costs, have negatively impacted investor sentiment, therefore choking flows into investment trusts.”

Separately, Nikhil Rathi, the FCA chief executive, said in a speech that there needed to be an “open conversation about the risks and trade-offs” required if the financial industry is to pursue innovative initiatives to boost financial inclusion in Britain.

“For example, AI-enabled hyper-personalisation of insurance could benefit many by providing more tailored premiums, but at the same time runs the risk of rendering some customers ‘uninsurable’, or even potential discrimination,” he said.

“The recent controversy surrounding dynamic pricing for Oasis concert tickets shows the need for vigilance. Just because something can be done, doesn’t necessarily mean the public will accept it.”