ESMA flags concerns over fund costs

While European securities regulators have generally improved their oversight of ETFs and other collective investment funds, concerns about the costs of certain portfolio management tactics remain, according to a new report from the European Securities and Markets Authority (ESMA).

The progress report found that regulators in Europe have strengthened their supervisory practices and enhanced internal and external guidance for ETFs and other funds, since they were last reviewed in 2018.

Nevertheless, ESMA said there are still concerns with the costs of some funds that use certain “efficient portfolio management techniques” — such as engaging in securities financing transactions and using total return swaps.

In particular, it found cases where these costs were significantly higher for some funds than others, especially where related parties are providing the portfolio management.

“This is an area of concern from an investor protection perspective,” it said, adding that regulators should continue monitoring the situation.

“Investors need high-quality information to make informed decisions when investing in [funds] using [efficient portfolio management],” it said, adding that work should continue on oversight of costs, fees and revenues in this area.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.