The European Securities and Markets Authority (Esma) is likely to start another review of the fees in the European fund industry with a focus on performance fees and additional expenses that are not covered within the management fee, according to by Detlef Glow, head of EMEA Research at Lipper.
Such costs are handled differently by the local authorities, and critics argue this can hinder competition in the European fund industry. A new European Parliament was recently elected and is set to encourage the EU government to consider a raft of new regulation, including the regulation of mutual funds.
“I am in favour of such an initiative, as that would open up a level playing field in all EU countries and would increase protections for retail investors,” Glow wrote in a recent blog post.
Glow said a good example of such regulations regarding performance fees is in Germany, where many funds registered in other European countries – even if they are Ucits compliant – cannot register for sales because rules regarding fee disclosure are so much more robust.
“Another example of a fee that may come under scrutiny is the service fee that funds domiciled in France can charge their customers,” Glow added.
The French regulator allows funds to charge this fee without disclosing it, even though all services within the fund management and administration process should be covered by the respective disclosed fees, such as the management fee.
ESG considerations
Glow said that sustainable finance initiatives are likely to come under consideration in any upcoming review of the Ucits regulation, forcing all funds registered for sales in the EU, and the respective fund management companies, to integrate environmental, social and governance (ESG) criteria in their fund management process and to disclose how the respective fund is performing with regard to upcoming EU taxonomy and the Sustainable Development Goals of the United Nations.
“I can also imagine Esma may shine a spotlight on securities lending since it looks like this modern portfolio management technique is not only used to manage portfolios efficiently, but also to enhance the revenues of the fund promoters,” Glow added.
“The industry will try to stop these initiatives as possible to protect their revenues. But I hope that the new commission will not allow the European asset management industry too much influence on the new regulations, as this would mean that investor protection will once again fall behind the interests of the asset management groups.”
