Better Finance, the European Federation of Investors and Financial Services Users, has claimed that an investigation into allegations of closet-tracking in equity funds in Luxembourg took far longer than probes in other European countries and that the conclusions of the investigation are “quite weak”.
Brussels-based Better Finance said that Luxembourg’s financial regulator CSSF had taken “many months” more than regulators in other European countries to complete an investigation into allegations of closet-tracking – where actively managed funds track an index in much the same way as passive funds.
The inquiry had been called for by the European Securities and Markets Authority (Esma).
While Esma had identified that up to 15% of funds marketed as actively managed were potential closet-index funds, the CSSF had only identified one such fund “but this one is still being analysed and its name kept hidden from investors”.
Better Finance also criticised the CSSF for “implicitly and very vaguely” acknowledging that “some” funds violate disclosure rules on benchmarks.
“Investor disclosure in relation to the use of a benchmark can be improved for some of the funds under review,” the CSSF said: a finding that Better Finance said was a clear understatement.
Better Finance claims that more than half of the suspicious equity funds that also fail to disclose benchmark performance alongside fund performance are domiciled in Luxembourg.
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