On 6 June 2023, the European Securities and Markets Authority (ESMA) issued a follow-up peer review report which provides an update on the action that Member State competent authorities (NCAs) have taken to address the issues that were identified in the 2018 peer review on the guidelines on exchange traded funds and other UCITS issues.

During the follow-up peer review ESMA:

• Assessed whether three NCAs had improved their practices based on the peer review findings.
• Enquired on the supervisory work carried out by four NCAs in relation to the attribution of revenues and costs derived from securities lending by UCITS, also in light of the findings of a Better Finance research paper published after the peer review.

On the whole, ESMA positively notes that the NCAs for which room for improvements were identified in the peer review have strengthened their supervisory practices. ESMA also identifies that the three NCAs have made progress in addressing points of partial or insufficient compliance with the guidelines identified in the peer review. In addition, NCAs which supervise UCITS engaging in efficient portfolio management (EPM) techniques reacted to the Better Finance paper undertaking supervisory work to check the part of revenues resulting from securities lending transactions attributed to the UCITS.

ESMA notes that there are instances where the EPM costs charges to some UCITS are significantly higher in comparison to other UCITS, especially where EPM techniques are carried out by the UCITS management company itself or by their related parties. ESMA states that this is an area of concern from an investor protection perspective and NCAs should continue monitoring it.