For your information, “Esma is an independent EU Authority that contributes to safeguarding the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets,” according to esma.europa.eu.

A recent peer review carried out by Esma assessed the level of compliance of six national competent authorities with its guidelines on efficient portfolio management. The countries reviewed were: Luxembourg, Estonia, France, Germany, Ireland and the United Kingdom. A number of shortcomings were identified.

A press release dated 30 July 2018 claims, “Esma found deficiencies in the national supervision of Ucits engaging in EPM,” in particular in relation to, “operational aspects of costs, fees and revenues for EPM, and collateral management issues.”

Esma now calls for national competent authorities to:

• ensure a more systematic and formalised 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 NCAs, and in particular 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 NCAs;
• 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; and
• 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.

 The CSSF was not available for comment at the time this article was published.