Europe: ESMA Advocates More Specific Restrictions on the Costs Fund Managers May Pass on to Investors

By Áine Ní Riain and Gayle Bowen

The European Securities and Markets Authority (ESMA) has suggested that the European Commission should clarify the costs that UCITS management companies and AIFMs may pass on to investors under existing rules that prohibit “undue costs”.  Costs for this purpose include fees payable to the manager and other fund service providers and all other one-off, recurring or transaction-related costs.  The purpose of the proposed clarification would be to provide for better convergence between the approaches of different EU member states, and a better basis for national regulators to take supervisory and enforcement actions in this area.

More specifically, ESMA has proposed that it should be mandated to specify the circumstances in which particular costs should be considered eligible, taking into account funds’ investment policies.  It has also suggested that national regulators could be authorised, subject to conditions ESMA would develop, to provide case-by case authorisation of costs outside of those on an agreed list of eligible costs.

Going a step further, ESMA also believes that the assessment of eligibility of costs should cover the amount of costs charged to fund investors.  It hopes that this would avoid overcharging, particularly in the context of related party transactions, whilst also recognising that national regulators are not “price regulators”. For more information see ESMA’s Opinion on undue costs of UCITS and AIFs  issued on 17 May 2023 or our  full Article, or contact one of our authors.