On 21 February 2022, the European Court of Auditors (ECA) published a special report concerning its findings following an audit during the period 2016 to July 2021 which examined how the EU set up a single market for investment funds. The special report concludes that EU actions have enabled a single market for investment funds to be established, notably through the passporting regime, but that true cross-border activities and benefits for investors remain limited. In addition, the consistency and effectiveness of fund supervision and investor protection are flawed. Minor revisions of the legal framework will not be sufficient to achieve a true single market.

The special report also notes that EU actions have increased investor protection. For instance, they enhance transparency for investors, in particular on investment risks, performance and costs. However, investors are still not sufficiently protected from undue costs or against biased advice from financial intermediaries. As a result, investors face higher costs, and can be sold less suitable products than is desirable.

The special report recommends that the European Commission should:

  • Assess the suitability of the existing framework to achieve the desired objectives.
  • Consider proposing changes to the European Securities and Markets Authority’s (ESMA) governance structure.
  • Streamline data collection and update reporting regimes.

It also recommends that

  • ESMA should enhance the effectiveness of its convergence work and in cooperation with the European Systemic Risk Board, improve the identification of systemic risk.
  • The Commission and ESMA should better protect investors against undue costs and misleading information.