ESMA launches public consultation on new UCITS fees guidelines

The European Securities and Markets Authority (ESMA) is asking the public to chip in about how the guidelines regarding undertakings for collective investments in transferable securities (UCITS) should look like.

This is currently regulated by Directive 2009/65/EC of the European Parliament and of the European Council.

As the EU’s financial watchdog, ESMA is now enlisting the help of the public to provide better guidelines for member states to ensure companies behave honestly and with integrity to the UCITS they manage and to the market as a whole.

Particularly, the EU authority is asking for insights about how to harmonize the block’s different performance fees standards. The reason for this is that the standards can vary between different member states.

“Costs are vital to successful investments and especially so when investing in UCITS,” says Steven Maijoor, chair of ESMA. “Performance fees are a key feature both for investors and funds alike. However, different practices exist, creating undue risks of regulatory arbitrage and inconsistent levels of investor protection. Considering the importance of cross-border distribution for UCITS, ensuring greater supervisory convergence regarding performance fees is essential.”

The EU watchdog is especially looking for insights regarding general principles on performance fee calculation methods. It’s also looking for consistency between the performance fee model and the fund’s investment objectives, strategy and policy. Moreover, ESMA is keen to receive thoughts the frequency for the performance fee crystallisation and payment, the circumstances where a performance fee should be payable and disclosure of the performance fee model.

However, while those areas are the priority, the ESMA is also keen to know whether the new guidelines should be applied to alternative investment funds (AIFs) marketed to retail investors.

Once the public consultation, ESMA will consider the feedback it receives in the final quarter of 2019. It then aims to finalise the guidelines for publication afterwards.

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