On 24 March 2023, the Central Bank issued a “Dear Chair” letter to fund management companies that sets out the main findings of the inspection, the Central Bank’s supervisory expectations in this area and identifies the key actions to be taken. A copy of the letter entitled “2021 Common Supervisory Action on the supervision of Costs and Fees of UCITS” can be viewed on the Central Bank’s website here.

While the scope of the CSA did not include a review of AIFMs, the Central Bank expects that the findings and actions of the review are also considered by AIFMs with respect to cost and fees charged to AIFs.

Key Findings and Supervisory Expectations

While the CSA did not identify material undue costs being charged to UCITS, a number of deficiencies were identified in setting the cost and fee structure for investment funds. The following is a summary of the key findings and supervisory expectations of the Central Bank:




Central Bank Expectation
Policies and Procedures



Lack of detailed and documented policies and procedures


Insufficient pricing governance structure

Structured, formalised pricing policies and procedures with clear oversight and approval from senior management that allows for the transparent identification and quantification of all costs charged to the fund
Review of costs and Fees



Failure to regularly review costs and feesAll costs, both new and existing, to be reviewed annually taking into account: (1) investment objective and strategy, (2) target and actual level of performance achieved, and (3) role and responsibilities of service providers


Periodic reviews should also be performed to ensure that the fund continues to offer investors a return commensurate with the risk profile of the fund

Review should evidence that throughout the life of the fund, the costs and fees are calculated in a fair and equitable manner, serving the best interests of investors

The viability and competitiveness of the fund should be considered in terms of the fund being capable of providing a positive return to investors. The board should further consider if the fund remains a suitable investment for investors

Design and oversight of fee structure



Over-reliance on delegate investment managers to determine pricing structure with limited engagement in the process by management companies


Variations in the frequency and detail of board reporting on costs and fees

Clear policies and procedures for the design, oversight and regular review of cost and fee structures to ensure they are operating effectively and in the best interests of investors
Efficient Portfolio Management



Retention of revenue from securities lending[1]


Lack of formal and sufficiently detailed policies and procedures in place covering EPM activities

Lack of review of fees applicable to securities lending

All fee arrangements with respect to securities lending programmes to be compliant with ESMA’s expectations and clearly disclosed in the policies and procedures of the management company


EPM disclosures within fund documentation should clearly describe the EPM strategy, the risks involved and the fee structure

Fee arrangements relating to EPM activities should be reviewed as part of the annual costs and fees review

Fixed Operating Expense (“FOE”) ModelsRetention of disproportionate excess income under a FOE modelWhere a FOE is being used, investors to be fully aware of all expenses


FOE model to be calibrated so that any differential is minimised and that undue costs are not charged to investors

FOE models to be reviewed as part of the annual costs and fees review

Non-discretionary Investment Advisor ChargeFees paid to non-discretionary investment advisors higher than the delegated investment manager raising concerns that the investment advisor is acting with more influence and control than is appropriateFees paid to non-discretionary advisors to be appropriate for the services provided

Action Required

The Central Bank has advised that costs and fees should be calculated, on an ongoing basis, in a fair and equitable manner and serving the best interests of investors. The oversight and calibration of costs and fees should be made a priority for UCITS. As highlighted above, the Central Bank expects all firms managing both UCITS and AIFs to conduct a gap analysis of its findings and expectations and, where appropriate, put a plan in place by the end of Q3 2023 to address any gaps identified. The content of the letter should be discussed and considered by the board and appropriate action should be taken without delay.

[1] ‘ESMA’s guidelines on ETFs and other UCITS’ states that “all the revenue streams arising from efficient portfolio management techniques, net of direct and indirect operational costs, should be returned to the UCITS”.