EU watchdogs to study cost, performance of mutual funds

PARIS (Reuters) - European Union financial regulators will conduct a large-scale study of the cost and performance of mutual funds, a top regulator said on Tuesday.

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium June 14, 2017. REUTERS/Francois Lenoir

Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), told a conference in Paris that the regulators would look at both passive and active funds.

Passive investing, where funds typically charge the cheapest fees for tracking a stock index, has grown enormously.

Active funds charge more for their services, but some have been accused by critics of being “closet” trackers, meaning they track an index by stealth rather than - as they advertise - using their expertise to pick investments.

Regulatory agencies in Europe have become more focused on fees charged by investment funds in order to encourage people to invest more in their own retirement, rather than relying on the state.

Maijoor said ESMA and the European Banking Authority would assess the reporting of costs and past performance of retail investment products, to “increase investors’ awareness of the net return of these products, and the impact of fees and charges.”

The regulators will obtain more data on costs and charges under new EU securities rules known as MiFID II that come into force in January, Maijoor said.

Maijoor told Reuters that today’s very low interest rates on investments mean that costs and charges have become an important issue.

“We want to see to what extent do costs and charges affect performance,” Maijoor said.

However, increased transparency under MiFID II from next January will boost competition and help to drive down charges for investors, Maijoor said.

Valdis Dombrovskis, vice president of the EU’s executive European Commission, told the conference that Brussels would publish proposals to remove obstacles to the cross-border sales of funds regulated under EU law.

“This would ... broaden the offer of fund products across the EU,” Dombrovskis said.

Reporting by Huw Jones; Editing by Maya Nikolaeva and Larry King