Esma unveils draft ETF rules
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The European Securities and Markets Authority (Esma) has published draft guidelines which reinforce protection for exchange-traded funds (ETF) investors.
A consultation paper by the regulator explains the forthcoming rules that will be applied to Ucits ETFs, both physical and synthetic. The guidelines also cover all Ucits products that pursue the same type of investment policy as ETFs, such as tracking an index, or engage in the relevant activities, like securities lending.
The proposals aim to increase the transparency requirements applied to Ucits ETFs and demand greater use of labelling.
ETFs that track an index will have to disclose how the tracking is being carried out, as well as the method of replication and the tracking error. Actively-managed EFTs also have to offer investors greater amounts of information.
However, the regulator has not classified synthetic ETFs as “complex” products, a move which was feared by the industry as it would have prevented them from being sold to investors without advice.
The consultation paper does make a nod towards the issue of complex products, saying it remains aware of the increasing popularity of these products among retail investors and the lack of “regulatory convergence” on their manufacture and management.
“Esma reiterates the need to tackle these issues and will continue to contribute actively to the regulatory response to these problems,” the paper says.
In addition, the regulator has proposed tightening up securities lending practices, saying Ucits funds which lend their securities for a fee should tell investors about potential risks, conflicts of interest and possible impacts on performance.
Steven Maijoor, the chair of Esma, says: “The aim of these guidelines is to enhance investor protection and limit the risk of certain practices by strengthening, in particular, the standards applicable to collateral received in the context of activities such as securities lending.
“Moreover, the proposed guidelines improve the quality of the information provided to investors to allow them to make informed investment decisions.”
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