LONDON (Reuters) – The European Union’s markets watchdog published guidance on Thursday to crack down on undue costs being levied by asset managers on investors in funds.
The aim is for a common approach among regulators across the EU on what constitute undue costs and how to prevent them being charged to investors. An example could be excessive trading of stocks in a fund to generate fees.
“One of the key factors to mobilising investor participation in capital markets is to ensure that their trust in financial markets is improved and costs associated with buying financial products are reduced,” said Steven Maijoor, chair of the European Securities and Markets Authority.
ESMA said the lack of convergence on undue costs leaves room for regulatory arbitrage and risks of hampering competition in the EU market.
“Furthermore, it may lead to different levels of investor protection depending on where a fund is domiciled,” ESMA said.
It will take stock of the level of convergence reached in supervising how funds charge fees across the EU in 2021.
The guidance follows a report by ESMA last year that showed how charges swallow a quarter of gross returns from the 10 trillion euros invested in retail funds in the EU, with the bulk of the costs from ongoing management fees which are not always transparent.
The regulator is taking a harder line on fees as the bloc wants to grow its capital market to reduce reliance on Britain, which has left the EU, and as pandemic-hit companies need to improve their solvency by issuing stocks and bonds for asset managers to invest in.
Under the guidance, national regulators are required to review pricing processes at funds on a case-by-case basis when the fund is being authorised, or during inspections and thematic reviews, or as a result of investor complaints, ESMA said.
(Reporting by Huw Jones; editing by Carolyn Cohn and David Evans)