Europe: ESMA and National Regulators Launch Coordinated Review of Fund Manager Compliance and Internal Audit Functions

By: Shane Geraghty, Hazel Doyle, and Gayle Bowen

On 14 February 2025, the EU’s securities and markets regulator, the European Securities and Markets Authority (ESMA), launched a Common Supervisory Action (CSA) with EU Member State National Competent Authorities (NCAs), in relation to compliance and internal audit functions of UCITS management companies and Alternative Investment Fund Managers (AIFMs) across the EU.

The CSA aims to assess to what extent UCITS management companies and AIFMs have established effective compliance and internal audit functions with adequate staffing, authority, knowledge, and expertise to perform their duties under the AIFM and UCITS Directives. The CSA is expected to be conducted through to the end of 2025.

UCITS management companies and AIFMs are required to have robust internal controls to protect investors and preserve financial stability. Their compliance and internal audit functions should accordingly be designed to ensure that internal control mechanisms to monitor, identify, measure, and mitigate any possible risks of non-compliance with relevant legal and regulatory obligations are in place.

A common assessment framework developed by ESMA sets out the scope, methodology, supervisory expectations, and timeline on how to carry out a comprehensive CSA in a convergent manner. It will be used to coordinate and compile the information required to complete the CSA.

Throughout 2025, it is expected that NCAs will share knowledge and experiences through ESMA in order to seek consistency as to how they supervise the compliance of UCITS management companies and AIFMs with the relevant rules in the area.

Next Steps

It is expected that ESMA will publish a final report with the results of the CSA in 2026.

For any queries relating to the CSA, please reach out to the K&L Gates Asset Management and Investment Funds team.