The Central Bank of Ireland (the “Central Bank”) has announced that it will shortly commence two ESMA-led supervisory reviews focusing on closet indexing and value for money in investment products. The reviews form part of a coordinated EU supervisory initiative and support the Central Bank’s stated objective of enhancing oversight of product costs, charges and investor disclosures.

The Central Bank has indicated that certain firms may be contacted during August and September as part of these exercises.

What has been announced?

The reviews will assess firms’ governance frameworks, policies and procedures using methodologies developed by ESMA to promote supervisory consistency across EU Member States. The exercises are expected to become recurring annual reviews.

The initiatives are linked to the Central Bank’s Regulatory & Supervisory Outlook, published in February 2026, in particular its focus on strengthening oversight of product costs and investor disclosures. ESMA has also developed analytical tools to support the identification of firms for review, drawing on its work relating to the costs and performance of retail investment products and its established closet indexing indicators.

Why is this important?

This announcement highlights the continuing regulatory focus on ensuring that investors receive fair value and that actively managed funds operate in a manner consistent with their disclosed investment objectives and management style.

The reviews also reflect broader supervisory trends across the EU, including:

• increased scrutiny of fund charges, fees and overall product value;
• enhanced focus on disclosures made to investors regarding investment strategies and outcomes;
• greater use of data-led supervisory tools to identify outliers and supervisory risks; and
• increasing coordination between national competent authorities (“NCAs“) and ESMA on thematic supervisory reviews.

In its Regulatory & Supervisory Outlook for 2026, the Central Bank emphasised that fees and charges must be transparent, proportionate and clearly justified, with effective oversight by fund management companies to ensure investors receive value for money. More broadly, the Central Bank has highlighted the need for high-quality, understandable investment products that support greater retail participation in capital markets while delivering appropriate investor outcomes.

The Central Bank’s focus on understandable investment products and value for money is consistent with the broader objectives of the EU Retail Investment Strategy (“RIS”), which seeks to increase retail participation in capital markets by ensuring that investment products are transparent, comprehensible and aligned with investors’ needs. The RIS places particular emphasis on clear disclosures, robust product governance and demonstrable value for money, with the aim of enhancing investor confidence and encouraging greater participation in long-term investing.

For more on the RIS, please see our recent update here: EU Retail Investment Strategy: Key impacts for fund managers | Arthur Cox LLP

The Central Bank has previously examined closet indexing through its 2019 thematic review of Irish UCITS. That review highlighted concerns regarding disclosure quality, transparency and governance oversight rather than making widespread findings of closet indexing itself. The forthcoming ESMA-led supervisory exercise is likely to revisit many of these themes, with an increased emphasis on data-driven supervisory analysis, governance arrangements and the ability of firms to demonstrate that actively managed funds operate consistently with their stated investment objectives and fee structures.

Practical considerations for firms

Fund management companies and investment managers should consider whether their governance and oversight arrangements are appropriate to address the points identified by the Central Bank and ESMA.

In particular, firms should consider:

• whether fund investment strategies and portfolio holdings remain aligned with the disclosures made to investors;
• the adequacy of board and management oversight of product value and investor outcomes;
• the robustness of policies and procedures relating to fee governance and product review processes;
• the documentation supporting value-for-money assessments; and
• the firm’s ability to demonstrate ongoing monitoring and challenge where concerns are identified.

Looking ahead

The Central Bank’s announcement signals that supervisory attention on closet indexing and value for money is set to intensify. Given the indication that these exercises will become annual reviews, firms should view the initiative not as a one-off thematic review but as part of an ongoing supervisory framework focused on investor protection and product governance.

UCITS management companies, AIFMs and investment managers should monitor developments closely and ensure that their governance, disclosure and product oversight frameworks are capable of meeting evolving regulatory expectations.

If you would like to discuss the implications of these supervisory reviews, please contact your usual Arthur Cox contact.