The European Securities and Markets Authority (ESMA) initiated a peer review and published a report that found that six national competent authorities (NCAs) need to enhance their supervision of Undertakings for Collective Investments in Transferable Securities (UCITS) operating with Efficient Portfolio Management Techniques (EPM).
BETTER FINANCE thanks ESMA and welcomes the action taken on consumer protection: the initiative could constitute a first step towards more transparency and supervisory convergence.
NCAs in Estonia, France, Germany, Ireland, Luxembourg, and the United Kingdom were not fully in line with ESMA’s Guidelines on EPM practices. More specifically the peer review assessed aspects related to operational costs, fees and revenues for EPM as well as collateral management issues.
ESMA calls on NCAs to:
1- Ensure a more systematic and formalised review of the required EPM disclosures, allowing investors to better understand funds’ EPM engagement, the risks involved, and the cost and fee policy concerning EPM.
2- Provide more comprehensive internal supervisory guidance on costs, fees and revenues regarding EPM.
3- Ensure that all net revenues from EPM are returned to the investors.
4- Revise existing national exemptions to the Guidelines on collateral requirements granted in the UK and Germany so that fund assets can only be used for EPM purposes where UCITS receive high-quality and liquid collateral in accordance with the standards set out in the ESMA Guidelines
The Chair of ESMA, Steven Maijoor, intervened on the issue saying: “This is an important stock-take revealing both good practices and areas where improvements are needed. Ensuring that the use of efficient portfolio management by UCITS is sound and not detrimental to the protection of investors, is important’’.