Data and Analytics Insights

Review of the ESMA report on the UCITS sanctions 2022

Detlef Glow

Head of EMEA Research at Refinitiv Lipper

On July 18, 2023, the European Securities and Markets Authority (ESMA) published its seventh annual report concerning penalties and measures issued under the UCITS Directive. The report shows that nine National Competent Authorities (NCAs) in Europe have issued a total of 38 measures which amount to penalties of more than 97.4 million EUR against market participants in 2022.

A closer view on the single penalties shows that 96.5 million EUR of these penalties were issued by the French regulator Autorité des Marchés Financiers (AMF) against H2O, which leaves the overall amount of penalties issued for all other instances at 0.972 million EUR.

The report also shows that 16 NCAs did not impose any sanction (penalty or measure) during the reference period.

Within the report, ESMA states that the AMF issued the majority of financial penalties over the reporting period (2016 – 2022)

Graph 1: Global Overview of Penalties Issued by NCAs under the UCITS Directive, January 1, 2016 – December 31, 2022

The graph is a comparison of the number of national competent authorities (NCAs) which issued penalties in the EU, the total number of penalties and the total amount of penalties in million euro between 2016 and 2022. The graph depicts that the number of NCAs who issued penalties is rather low, since the highest number of NCAs which issued a penalty was 14 (2018), while the lowest number was 8 (2016). The same is true for the total number of penalties issued by those NCAs, since the lowest number of penalties is 34 (2016) while the highest number was 61 (2021). A view on the total amount of penalties (in million euro) showed an even worse picture since the lowest total amount of penalties was 1.10 million euro, issued in 2020, a year were 13 NCAs issued overall 57 penalties, which means the average penalty issued in 2020 was 19,298 euro. The highest total amount of penalties (97.47 million euros) was issued in 2022. This amount is the total of only 38 penalties issued by 9 NCAs.

Source: ESMA

Generally, ESMA concludes that data gathered under the sanction reports published so far keeps showing that the sanction powers are not equally used among the different NCAs and that the limited number of NCAs which have issued sanctions and the number and amount of sanctions are relatively low.

From my point of view, this raises the question of whether all NCAs are seriously analyzing the processes and practices in their local funds industries. In an answer to this question, ESMA acknowledges that the issue at hand can be complex and multi-faceted, and that no automatic parallelism should be drawn between the number or amount of sanctions (penalties and measures) issued by an NCA and the quality of their supervisory activity. At the same time, ESMA assumes that one reason for the low number of penalties and measures might be that NCAs instead use escalated supervisory measures instead of taking enforcement measures. Regarding this, ESMA reiterates the importance of using the full range of the supervisory and enforcement toolkit provided to NCAs under the UCITS Directive.

Another point of concern from my point of view are the generally low amounts of penalties issued in comparison to the overall assets under management and the resulting management fees within the European fund industry. Taking into account that the overall sum of penalties was driven by three major penalties, the average amount of penalties per year was around 1.1 million EUR when subtracting the three major penalties from the overall.

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