The Board of the International Organization of Securities Commission today published the final report on Good Practice for Fees and Expenses of Collective Investment Schemes (CIS), which aims to identify common international examples of good practice that can be applied to CIS fees and expenses.
Regulators have long been concerned about the impact of CIS fees and expenses on the investment decisions taken by investors. Fee arrangements, even when fully disclosed, can give rise to conflicts of interest that are best addressed by rules of conduct. High standards of transparency and conduct in this area should help encourage competition among CIS operators and lead to a more efficient market, thereby eventually benefitting investors.
In 2004, IOSCO reviewed existing practices with respect to CIS fees and expenses and published a set of standards to be regarded as good or best practice. It was envisaged that these practices would evolve over time, as the natural evolution of the industry resulted in new product structures, investment strategies and distribution models, leading regulators to adapt their approach.
IOSCO, therefore, carried out a second review in 2015, which reflected a wider range of regulatory approaches towards markets at differing stages of maturity, and took into account recent developments in its member jurisdictions.
The 23 examples of good practice set out in this report reflect approaches to issues identified by regulators in some key areas, namely:
- permitted or prohibited costs for a CIS
- disclosure of fees and expenses to the investor, including use of electronic media
- remuneration of the CIS operator
- performance-related fees
- transaction costs
- hard and soft commissions on transactions
- fees associated with CIS that invest in other funds
- fee differentiation in multi-class CIS
- changes to the fees and expenses of a CIS.
These are, however, not intended to serve as comprehensive requirements for the regulation of fees and expenses.
Markets will continue to evolve and change, raising the possibility of the need for further revisions or enhancements to these examples of good practice.
IOSCO hopes these examples will promote greater fairness and transparency in an industry that helps manage the long-term savings of millions of people around the world.
The IOSCO statement and related information can be found here.