ESMA reports on supervision of costs and fees in investment funds

The European Securities and Markets Authority (ESMA), the EU securities markets regulator,
today publishes a report on the Common Supervisory Action (CSA) on costs and fees for
investment funds, that was carried out with National Competent Authorities (NCAs) during
2021. ESMA highlights, in the Report, the importance of supervision in ensuring investors are
not charged with undue costs, considering its high impact on investors’ returns.
Verena Ross, Chair, said:
“ESMA, through this CSA, has worked with the NCAs to assess, foster and
enforce supervised entities’ compliance with key cost-related provisions in the
UCITS framework, in particular, the obligation of not charging investors with
undue costs. Costs remain a critical component when evaluating the ultimate
benefits of an investment and, as ESMA has shown in its recent statistical
reports, they remain higher for retail investors than for institutional investors.
“In order to promote retail participation in the fund market, continued
supervisory attention is needed on the topic of costs and fees in investment
The CSA Report presents the main results of this exercise, namely:
• There is room for improvement in the application of the ESMA supervisory briefing
on the supervision of costs in UCITS and AIFs, particularly for smaller management
• Some questions arise concerning compliance with delegation rules where portfolio
managers i.e. delegates, exercise significant influence or even decide the level of
• Divergent market practices exist as to what industry reported as “due” or “undue”
costs; • Some NCAs discovered conflicts of interest with UCITS managers, in particular in the case
of related-party transactions;
• In some instances there is a lack of policies and procedures for efficient portfolio
management (EPMs) and lack of clear disclosures as required under the ESMA
Guidelines on ETFs and other UCITS issues; and
• Widespread use of fixed fee splits arrangements for securities lending continues, with
unfavorable results for retail investors.
On the topic of investor compensation, ESMA stresses the importance of ensuring that
investors are adequately compensated in all cases where they were charged with undue
costs or fees, and also in cases where there were calculation errors that resulted in a
financial detriment for investors.
Next steps
ESMA invites NCAs to use this opportunity to also consider enforcement actions in the cases
where a significant regulatory breach was identified, particularly bearing in mind that the area
of costs and fees is a priority due to the high relevance for investor protection.
ESMA and the NCAs will continue working on the topic.

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