There has been a significant amount of discussion around fund fees and expenses in the past few years as regulators aim to increase fee transparency to investors. In the UK, the FCA has published a number of studies and reviews on this matter (TR14/7 – Clarity of fund charges) and has also addressed this issue in its 2015 business plan as an area of focus.

In June 2015, the International Organization of Securities Commissions (“IOSCO”) published the consultation report on Elements of International Regulatory Standards on Fees and Expenses of Investment Funds, proposing an updated set of common international standards of best practice for Collective Investment Scheme (CIS) operators and regulators to consider. The consultation builds upon a previous report by IOSCO dating back to 2004 and seeks to examine whether the 2004 standards are still applicable in light of the many economic developments since 2004.

The purpose of this initiative is to identify international best practice standards in the area of fees and expenses in investment funds through the identification of the goals that regulators should seek to achieve when dealing with some of the issues raised by fees and expenses. The standards identified in the paper are not intended to serve as comprehensive requirements for the regulation of fees and expenses or to impose obligations on any members but rather to identify and develop a level of common approach among regulators.

The scope of the report covers collective investment scheme, including mutual funds or UCITS, as well as closed-end funds whose shares or units are traded in the securities market, unit investment trusts and contractual models. Funds such as private equity, venture capital and hedge funds are not included in the report.

The best practice standards identified by IOSCO fall within, and address, the following categories:

  • Disclosure of fees and expenses to the investor (through electronic media);
  • Conditions of remuneration of the fund operator;
  • Performance fees;
  • Transaction costs;
  • Hard and soft commissions on transactions;
  • Funds that invest in other funds;
  • Multiclass funds; and
  • Changes in a fund’s operating conditions.

In light of the significance of this topic and its growing popularity among regulators, on both national and international levels, firms should consider the IOSCO proposed standards carefully and express their comments as they might be of a practical impact to their business. IOSCO is accepting comments until 23 September 2015 and the full consultation report, including the best practice standards and information on how to submit your comments, can be found on this link.

To view the 2004 best practice standards and consultation report please follow this link.

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.