ESMA: National regulators need to improve their supervision of UCITS
02 August 2018 Paris
Image: Shutterstock
The European Securities and Markets Authority (ESMA) has found that national regulators need to improve their supervision of UCITS engaging in efficient portfolio management techniques (EPM).
ESMA’s peer review assessed six national competent authorities (NCAs) including Estonia, France, Germany, Ireland, Luxembourg, and the UK.
The finding particularly related to the supervisory practices regarding operational aspects of costs, feed, revenues for EPM, and collateral management issues.
ESMA called on NCAs, in particular for Estonia and the UK, to make a number of improvements in their peer review.
This included ensuring a more systematic and formalised review of the required EPM disclosures.
Additionally, ESMA advised reviewed NCAs to provide more comprehensive internal supervisory guidance on costs, fees, and revenues regarding EPM.
Meanwhile, Germany and Luxembourg in particular should ensure that all net reviews from EPM are returned to the investors, ESMA revealed.
This in regards to revenue splits between investors, fund managers, and their service providers.
As well as this, they are advised to revise existing exemptions to the guidelines on collateral requirements granted in the UK and Germany.
According to ESMA, this is 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.
Good practices were also identified in the ESMA peer review, which focused on data-driven supervision to help identify areas on which to concentrate resources.
Bespoke reporting tools to provide support to and augment oversight of UCITS and their adherence to the guidelines were also noted as a focus of good practice.
Steven Maijoor, chair of ESMA, said: “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.”
He added: “In order to increase supervisory convergence in this important area, ESMA has asked NCAs to amend their supervisory practices in specific areas—as a true level playing field is built on consistent application and supervision of the rules.”
ESMA’s peer review assessed six national competent authorities (NCAs) including Estonia, France, Germany, Ireland, Luxembourg, and the UK.
The finding particularly related to the supervisory practices regarding operational aspects of costs, feed, revenues for EPM, and collateral management issues.
ESMA called on NCAs, in particular for Estonia and the UK, to make a number of improvements in their peer review.
This included ensuring a more systematic and formalised review of the required EPM disclosures.
Additionally, ESMA advised reviewed NCAs to provide more comprehensive internal supervisory guidance on costs, fees, and revenues regarding EPM.
Meanwhile, Germany and Luxembourg in particular should ensure that all net reviews from EPM are returned to the investors, ESMA revealed.
This in regards to revenue splits between investors, fund managers, and their service providers.
As well as this, they are advised to revise existing exemptions to the guidelines on collateral requirements granted in the UK and Germany.
According to ESMA, this is 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.
Good practices were also identified in the ESMA peer review, which focused on data-driven supervision to help identify areas on which to concentrate resources.
Bespoke reporting tools to provide support to and augment oversight of UCITS and their adherence to the guidelines were also noted as a focus of good practice.
Steven Maijoor, chair of ESMA, said: “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.”
He added: “In order to increase supervisory convergence in this important area, ESMA has asked NCAs to amend their supervisory practices in specific areas—as a true level playing field is built on consistent application and supervision of the rules.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
