The FCA has told managers of 64 funds to make it “clearer” to consumers how constrained they are, it has been revealed.

Around £34m in compensation has been paid to consumers after some active funds were found to be, in effect, ‘closet’ tracker funds.

An enforcement investigation is under way against one fund firm.

The regulator said it issued the instruction after it reviewed 84 potential closet tracker funds – which are passive but look and charge like active funds - by the end of last year.

Officials found the other 20 were “adequately describing how they were being managed”.

With both ‘closet trackers’ and ‘closet constrained’ funds the way the fund is managed “isn’t clear so consumers aren’t getting what they expected,” Megan Butler, FCA’s executive director of supervision – investment, wholesale and specialist, said.

She said: “We expect fund managers to take their duty to their consumers seriously.

“They should manage their funds the way consumers expect them to and tell consumers what they are doing.

“That is why clear promotional material for investment funds is a priority for us. Most recently we discussed it as part of our proposed remedies in the Asset Management Market Study final report, published in June 2017.”

A final report relating to the 84 funds that had been reviewed stated there was £109bn in partly active funds charging fully active fees.

Ms Butler said it “isn’t quite correct” to say, as some observers inferred, that this all related to closet trackers.

She said: “This figure referred to the amount invested in partly active funds that were significantly more expensive than traditional passive funds. These funds may well be adequately disclosing how they are investing people’s money.

“But they are expensive compared to similar products, reinforcing the central finding in our study; that price competition in asset management is weak in a number of areas.”