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ESMA issues consultation on Guidelines for Performance Fees for Retail Funds (UCITS)

Background

  • Published on the 16th July 2019 with a closing date for responses by 31st October 2019, ESMA issue their draft guidelines on performance fees for Undertakings for Collective Investments in Transferable Securities, UCITS.  
  • The guidelines aim to harmonise the way in which performance fees can be charged to the UCITS and its investors while ensuring common standards of disclosure, and the prevention of undue costs being charged.
  • In developing its draft guidelines, ESMA also considered the Good Practice for Fees and Expenses of Collective Investment Schemes by the International Organization of Securities Commissions (IOSCO).

Impact

ESMA’s draft guidelines propose common criteria to promote supervisory convergence in the following areas:

  • general principles on performance fee calculation methods;
  • consistency between the performance fee model and the fund’s investment objectives, strategy and policy;
  • frequency for the performance fee crystallisation and payment;
  • the circumstances where a performance fee should be payable; and
  • disclosure of the performance fee model.

ESMA is seeking stakeholders’ feedback on the proposals made in the above areas as well as on whether the principles set out in the Guidelines should also be applied to Alternative Investment Funds (AIFs) marketed to retail investors.

The proposed guidelines follow a mapping exercise ESMA conducted in 2018 among national competent authorities (NCAs), which analysed the current national practices for key aspects of performance fees, revealing a lack of harmonisation among EU jurisdictions.

Timeline

  • Consultation closes on 31st October 2019
  • ESMA advice to be finalised by end Q4, 2019

Next steps

ESMA will consider the feedback it receives to this consultation in Q4 2019 with a view to finalising the guidelines for publication afterwards.