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 1. Home
 2. ESMA News
 3. ESMA calls for legislative amendments to prevent undue costs in funds


ESMA CALLS FOR LEGISLATIVE AMENDMENTS TO PREVENT UNDUE COSTS IN FUNDS

Fund Management
Investor protection
Press Releases
17/05/2023

The European Securities and Markets Authority (ESMA), the EU’s financial markets
regulator and supervisor, has published an Opinion to the European Commission
with suggested clarifications of the legislative provisions under the UCITS
Directive and the AIFMD relating to the notion of “undue costs”.

Verena Ross, Chair of ESMA, said:

“IF WE WANT TO ENHANCE RETAIL INVESTORS’ PARTICIPATION IN CAPITAL MARKETS, WE
SHOULD ENSURE THAT THE EXPECTED RETURN OF INVESTMENT PRODUCTS ISN’T IMPACTED BY
UNDUE COSTS.  THAT INVESTORS GET VALUE FOR THEIR MONEY IS EVEN MORE IMPORTANT IN
THE CURRENT MARKET SITUATION, WITH HEIGHTENED INFLATION AND TIGHTENING OF
FINANCIAL CONDITIONS.

WITH ITS OPINION TO THE EUROPEAN COMMISSION ON UNDUE COSTS IN FUNDS, ESMA CALLS
FOR LEGISLATIVE AMENDMENTS TO THE UCITS DIRECTIVE AND THE AIFMD.  BY FURTHER
HARMONISING THE NOTION OF UNDUE COSTS AMONG MEMBER STATES, THE PROPOSAL AIMS AT
PREVENTING INVESTORS FROM BEING CHARGED WITH UNDUE COSTS AND ENSURING
APPROPRIATE COMPENSATION FOR INVESTORS."

 

ENHANCING INVESTORS PROTECTION

This initiative was prompted by one of the findings of the ESMA 2021 Common
Supervisory Action on costs and fees, which showed divergent market practices as
to what industry reported as “due” or “undue” costs in funds. Apart from the
high investor protection relevance of this matter, ESMA deems that a lack of
supervisory convergence on this topic leaves room for regulatory arbitrage and
risks hampering competition in the EU market. Furthermore, it may lead to
different levels of investor protection depending on where a fund or fund
manager is domiciled.

ESMA’s proposal is to take as a basis the supervisory expectations enshrined in
the 2020 supervisory briefing on the supervision of costs and ground these
expectations into clearer legal requirements. This would allow NCAs to build on
the supervisory efforts already deployed to ensure an even higher level of
investor protection thanks to a stronger legal hook in the UCITS and AIFMD
frameworks.

Check our dedicated page for more information.

 

NEXT STEPS

The European Commission is working on policy proposals in the context of the
Retail Investment Strategy (RIS) to empower retail investors and enhance their
participation in the capital markets. ESMA welcomes the Commission’s initiative
and is confident that the present Opinion can be taken into consideration in the
upcoming Commission’s legislative proposals on the RIS.

 

Further information:

DAN NACU-MANOLE

Communications Officer
@ Email: press@esma.europa.eu

RELATED DOCUMENTS

Download All Files Download Selected Files

Date Reference Title Download Select 17/05/2023
ESMA34-45-1747
Opinion on undue costs of UCITS and AIFs 17/05/2023
ESMA71-545613100-2315
ESMA calls for legislative amendments to prevent undue costs in funds - Press
Release

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