ESMA Finds Shortcomings in National Supervision of EPM by UCITS
ESMA published a report on the peer review on the guidelines on Exchange Traded Funds (ETFs) and other Undertakings for Collective Investments in Transferable Securities (UCITS) issues. ESMA found that national regulators need to improve their supervision of UCITS engaging in efficient portfolio management techniques (EPM). ESMA will follow up on the findings of this peer review in 24 months to assess the progress made by the national competent authorities.
This report presents findings regarding compliance of the assessed national competent authorities with the guidelines, identifies good practices of supervisory tools and measures that may be of interest to other national competent authorities, and highlights areas where follow-up policy work may be considered by ESMA to take into account changes in the regulatory framework and to address open questions concerning the application of the guidelines. The peer review assessed six national competent authorities from Estonia, France, Germany, Ireland, Luxembourg, and the United Kingdom. Based on the guidelines, besides identifying some good practices, ESMA found deficiencies in the national supervision of UCITS engaging in EPM. The findings of the peer review relate in particular to the supervisory practices regarding operational aspects of costs, fees, and revenues for EPM and collateral management issues. ESMA calls for national competent authorities to:
- Ensure a more systematic and formalized review of the required EPM disclosures, allowing investors to better understand funds’ EPM engagement, the risks involved, and the cost and fee policy concerning EPM. This finding is relevant for all reviewed national competent authorities and particularly for Estonia and the UK.
- Provide more comprehensive internal supervisory guidance on costs, fees, and revenues regarding EPM. This finding is relevant for all reviewed national competent authorities.
- Ensure that all net revenues from EPM are returned to the investors. This finding is particularly relevant for Germany and Luxembourg regarding revenue splits between investors, fund managers, and their service providers.
- Revise existing national exemptions to the guidelines on collateral requirements granted in the UK and Germany 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.
Related Links
Keywords: Europe, EU, Securities, UCITS, ETFs, Guidelines, Peer Review, ESMA
Related Articles
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
