Industry Letter on Common Supervisory Action on the supervision of Costs and Fees of UCITS

The Central Bank of Ireland (CBI) has released an Industry Letter highlighting the findings of its review on the costs and fees charged to UCITS, conducted as part of the ESMA’s Common Supervisory Action on the supervision of costs and fees of UCITS. The main objective of the review was to assess compliance with cost-related provisions in the UCITS framework.
The CBI expects all investment fund manager, including AIFMs, to take appropriate actions to address the findings and prevent undue costs being charged to funds and their unitholders. Key findings and supervisory expectations include:
– Lack of policies and procedures on costs and fees: Firms should have structured, formalized pricing policies and procedures in place with clear oversight and approval from senior management.
– Periodic reviews of costs and fees: Firms should review all costs, both new and existing, on an annual basis, considering the investment objective and strategy of the fund, performance, and the role of service providers.
– Design and oversight of fee structure: Firms should have clear policies and procedures for the design, oversight, and regular review of costs and fees structures to ensure they serve the best interests of investors.
– Efficient Portfolio Management: Firms should ensure that fee arrangements related to securities lending programs and EPM activities are compliant with ESMA’s expectations and are clearly disclosed.
– Fixed Operating Expense Models: Firms using FOE models should ensure they are calibrated to minimize differentials and undue costs charged to investors.
– Non-discretionary Investment Advisor Charge: Firms should ensure that fees paid to non-discretionary advisors are appropriate for the services provided.
Firms managing both UCITS and AIFs are required to conduct a gap analysis of the findings and expectations and put a plan in place by the end of Q3 2023 to address any gaps identified. The Central Bank of Ireland will consider these findings in future supervisory engagements and policy development.