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Alternative Market Briefing

Other Voices: ESMA takes aim at fund costs

Friday, June 12, 2020

Commentary from INDOS Financial

The thorny issue of fund costs and charges has been hotly contested by EU regulators for a number of years now amid concerns that investors were being disadvantaged. This focus continues and in June 2020 the European Securities and Markets Authority (ESMA) published a supervisory briefing for European national competent authorities looking into the charging structures at UCITS and alternative investment funds (AIFs) regulated under the Alternative Investment Fund Managers Directive (AIFMD).

In essence, its proposals seek to ensure that EU regulators consistently supervise the cost- related provisions in the UCITS and AIFMD legislation in order to prevent undue charges being borne by investors. The proposals could also present an opportunity for independent depositaries acting in the best interests of investors to broaden the scope of their oversight over the operations of funds.

The briefing states that managers of UCITS and AIFs should produce comprehensive "pricing process" reports, outlining and reviewing their individual fund costs. In order to prevent any unfair investor charges, ESMA is recommending that fund managers consider an extensive range of data points in their reports, adding that costs should be clearly disclosed to investors in a comprehensive and transparent manner. As part of this exercise, managers must clearly articulate the following:

> An assessment on whether their costs are necessary for the fund to operat......................

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