BETTER FINANCE welcomes ESMA’s efforts at rooting out closet funds

Date: 8th April 2019

Fresh guidance from Europe’s markets watchdog has been hailed by BETTER FINANCE as a first step towards rooting out the practice of closet-indexing, also referred to as falsely active funds. Recently ESMA published an update to its question and answers document on the UCITS directive, aimed at fostering supervisory convergence among national regulators on the issue. According to the update, UCITS managers should be explicit in revealing whether their fund is following an active or passive investment strategy in the key information document.

BETTER FINANCE, the campaign group that drew attention to the issue in previous years, says that such an update is “a welcome step in the right direction”. According to its Research and Policy Officer, Stefan Voicu, many UCITS funds are operating in “a grey area”. That was also confirmed by BETTER FINANCE’s study that found that around a third of suspected closet tracking funds were not disclosing their benchmarks’ performances to investors in the KIID.