The European Securities and Markets Authority (ESMA) recently published the findings of its 2025 Common Supervisory Action review, revealing that while most fund managers are compliant, significant governance weaknesses remain across the European Union.

The EU-wide review focused specifically on the compliance and internal audit functions of fund managers and was conducted with the participation of all national supervisors from the EU and EEA.

Most fund managers were found to comply with the primary requirements established under the AIFMD and UCITS framework, according to the final report.

The supervisory action identified specific flaws regarding the independence of control functions and the overall quality of internal policies.

The way in which senior management and boards exercise oversight was also highlighted as a particular area of concern by the regulator.

Significant differences in the quality and practical implementation of procedural frameworks were observed by national competent authorities during the review process.

These variations were notably dependent on the size, nature, and complexity of the market participants being assessed.

The report provides various examples of good and poor practices to show where controls were effective and where further strengthening is required.

Supervisory activities were carried out throughout 2025 using a combination of desk-based reviews and on-site inspections where appropriate.

The common assessment framework allowed for a standardised evaluation of how fund managers handle their internal regulatory obligations.

The overall outcome of the supervisory action was positive, the regulator acknowledged in its summary of the results.

National competent authorities are now encouraged to follow up on the breaches and vulnerabilities that were identified during the process.

Supervisors must better understand the root causes of these failures to ensure that remedial actions are implemented in a timely manner.

The regulator will continue to promote exchanges among national authorities to enhance supervisory convergence across the funds sector.

Future follow-up actions are expected to ensure that the remedial measures taken by fund managers are effective and permanent.

Effective internal audit functions are essential for maintaining the integrity of financial markets and protecting investors, the association stated.

The findings reflect a broader effort to ensure that the European fund industry operates under high standards of transparency and control.