Esma Pushes for Transparency in Fund Fees

Terry Flanagan

Steven Maijoor, chair of the European Securities and Markets Authority, said fund managers need to provide more transparency on fees to boost pan-European products.

He spoke today at Clearstream’s third Exchange of Ideas conference in London which focussed on the proposed European Capital Markets Union. The European Commission has launched an initiative to establish a CMU integrating the capital markets of the 28 member states by 2019. By encourage alternatives to bank financing, such as crowdfunding, in the region the Commission believes this will boost growth.

Maijoor said the Commission is now moving from conceptual discussions to taking concrete action as it reviews the 430 responses it received during the consultation period, which ended on 13 May.

The Esma chair said a successful capital market union requires active participation by investors, including retail. For example, in the US 65% of households invest in securities markets but in Europe this is just 20% as people prefer to keep their savings in deposits. “This preference can be expected to change as more households will have to take care of their own pension arrangements,” he added.

Esma has tried to make it easier to sell funds across borders with regulations such as Ucits and allowing fund managers to passport products which have have been approved by a national regulator to other EU countries.

“However most of the progress has been in the back office and products still have a home bias,” Maijoor added. “For customers to be able to assess performance, there needs to be more transparency in costs.”

He suggested that managers should use technology and set up on-line calculators or central databases on fund costs. In addition to more cost transparency, Maijoor said there should be more regulatory convergence. National authorities have, for example, introduced additional requirements for Ucits which makes cross-border marketing more difficult. “We need to specify the type of add-ons that national regulators can introduce, if any,” Maijoor added.

In another issue that affects the asset management industry, Maijoor said unbundling of research costs is necessary to improve coverage of smaller companies and encourage the entry of new independent providers.

“It was clear in our mandate that inducements are banned so it is not possible to have bundled payments anymore,” he added.

Under the new MiFID II regulations covering financial markets in the European Union, Esma had initially wanted all research to be paid for directly by fund managers and to ban the cost from being included in dealing commissions. However in December, after the consultation period ended , Esma proposed allowing asset managers to either pay for research from their own resources or make payments from a specific research account funded by a client. However the UK Financial Conduct Authority has said it believes that commission sharing arrangements are not compatible with Esma’s new guidelines and the final rules have not yet been set.

Maijoor said that another priority for Esma will be data collection. “Regulators need to have high quality data to identify risks and the capability to analyse that data,” he added.

Since February 2014 Esma has required reporting of over-the-counter and exchange-traded derivatives to authorised trade repositories in Europe. However, there have been issues with the low quality of the data and the lack of reconciliations between repositories.

“Trade reporting is a work in progress and Esma is working with national authorities to make sure the quality of reporting gets better,” Maijoor said. “I am optimistic that this can be solved in a reasonable timeframe.”

He added that being able to co-ordinate with trade repositories in other regions would take more time and be more difficult to resolve.

Featured image by Flickr/ Eirik Solheim under creative commons

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