ESMA Issues Results of CSA on the Compliance and Internal Audit Functions of Fund Managers

Why It Matters

The findings expose systemic governance gaps that could undermine investor protection and market stability, prompting tighter oversight and uniform standards throughout Europe’s fund industry.

Key Takeaways

• ESMA released final CSA report covering 30 European regulators.
• Most managers meet AIFMD and UCITS compliance basics.
• Governance gaps found in control function independence and oversight.
• Policy quality varies by firm size, complexity.
• ESMA urges NCAs to address breaches and boost convergence.

Pulse Analysis

The European Securities and Markets Authority (ESMA) uses Common Supervisory Actions to benchmark compliance across the continent’s fund managers. The 2025 CSA focused on the internal audit and compliance functions of alternative investment fund managers (AIFMs) and UCITS management companies, drawing on input from all 27 EU member‑state regulators and three European Economic Area authorities. By aggregating national findings, ESMA aims to identify best practices, spotlight deficiencies, and promote a level playing field for the EU funds sector.

The final report shows that while the majority of firms satisfy the baseline requirements of the AIFMD and UCITS directives, significant governance shortcomings persist. Independence of control functions—particularly internal audit—was frequently compromised, and many firms displayed uneven policy implementation, with smaller or more complex entities lagging behind. These gaps affect board oversight and senior‑management accountability, raising concerns about risk management consistency and the robustness of investor safeguards.

Looking ahead, ESMA is pressing national competent authorities to investigate the root causes of identified breaches and to enforce timely remedial actions. Continued dialogue among regulators, coupled with follow‑up supervisory actions, is expected to tighten convergence and elevate overall supervisory standards. For fund managers, the message is clear: strengthening internal controls and aligning with best‑practice policies is not just a compliance checkbox but a competitive imperative in an increasingly scrutinized market.