European Union rules for the near 20 trillion euro ($22 trillion) investment and hedge funds sector should be changed to stop investors being overcharged, the bloc’s securities watchdog said on Wednesday, with fines imposed for breaches.
The EU is due to publish draft rules next week to improve protection for investors who buy financial products to ensure value for money.
The European Securities and Markets Authority (ESMA) said there is a need for better clarity in EU investment and hedge funds laws on what constitutes “undue costs” on investors.
This would make it easier for regulators to take enforcement action against rip-offs, ESMA said.
“If we want to enhance retail investors’ participation in capital markets, we should ensure that the expected return of investment products isn’t impacted by undue costs,” ESMA chair Verena Ross said in a statement.
ESMA said it was confident that its ‘opinion’ on undue costs can be taken into consideration in next week’s proposals, known as the retail investment strategy.
Funds typically disclose their one-off and recurring costs to investors.
“The assessment regarding whether a cost is due/undue should also consider the amount of the cost as there can be cases where a cost meets the eligibility test, but it is ‘undue’ in terms of its quantum,” ESMA said.
“ESMA deems appropriate to ensure that fund managers reimburse or indemnify investors without undue delay where undue costs have been charged, including cases where costs have been wrongly calculated to the detriment of investors.”
Fund managers who intentionally or negligently infringe such a rule should be punished with a fine that is proportionate to the harm cause to investors, the watchdog said.