ESMA Consultation on Costs and Charges
Frites with your AoV, madame?
THE European Securities and Markets Authority’s (ESMA) consultation on cost and charges for UCITs and alternative funds issued on 3rd June 2020 should really not come as a surprise to anyone. Assessment of Value it is not, but as one governance maven put it, “looks halfway to AoV to me.”
As far back as January of last year, ESMA issued the first of what is to become an annual statistical review of performance and costs of retail investment products. This was quickly followed by yet another survey in July, this one of its national satellites (or National Competent Authorities, as they prefer to refer to them) on their approaches to supervision of the cost-related provisions under the UCITs and the AIFMD framework. And judging by the number of times ESMA’s boss, Steven Maijoor has referenced costs and charges in speeches over the past 18 months, you’d be justified in asking what took them so long.
So, are the 30,000-odd mutual funds that make up the global crossborder investment funds industry from Berlin to Bucharest to Bombay and all the way round to Bogota going to be subject to the same seven AoV criteria that UK authorised funds are? Almost certainly not.
In the first instance, monitoring isn’t the same thing as enforcement, and as one cost transparency expert commented: “The investment cost conundrum on the Continent is far worse than in the UK,” adding that the vested interests especially from the large and dominant banking channel – responsible for the bulk of distribution of mutual funds – will be considerable, especially as many of the largest local/regional asset managers are bank owned and controlled. And there are others who feel that “looking at UCITs and AIFs is missing the wood for the trees. “It is likely they are more (even if only relatively) transparent and fairly-priced than legacy pension/life wrapped investments, especially with the long tradition of bancassurance in continental Europe, where I am guessing customers are languishing in old and very expensive products “¦”
Sage words, or opinions, these may be, but several product governance chieftains at global multinational asset managers have already started to recognise that some version of the UK’s AoV is inevitable, and starting to think about getting in front of the regulatory narrative may be the most prudent course of action.
This latest serving from ESMA suggests that this may prove to be a prescient move and that firms should expect value assessment, in one form or another, to be a plat du jour on boardroom tables in Europe for quite some time to come.
FBC Members can find this latest consultation paper and a whole host of materials on the topic of value assessment in the FBC Report Bank in the Member Portal. Members can also access the AoV reports published so far in the UK via FBC’s AoV Report Bank.