The Central Bank of Ireland (CBI) has published a feedback statement unveiling new regulatory outcomes concerning Irish domiciled ETFs.
Gerry Cross, Director of Policy and Risk at the Central Bank of Ireland.
The statement is in response to feedback from ETF issuers, including the likes of BlackRock, Vanguard, and State Street Global Advisors, relating the regulator’s ‘Discussion Paper 6 – Exchange Traded Funds’ (known as DP6).
By introducing DP6, which it published in May 2017, the regulator sought to better understand and control the inherent risks within the ETF industry, particularly in stressed market conditions.
Ireland is the largest European centre for ETFs; more than half the continent’s $810 billion in ETF assets under management are linked to funds domiciled in the country.
Notable changes to CBI’s rulebook arising from the feedback include the CBI permitting different dealing times for hedged and unhedged share classes within the same ETF.
ETFs may also now establish both listed and unlisted share classes within a single fund structure, subject to disclosure requirements.
The regulator has, however, rejected calls from some issuers to relax the requirement for daily portfolio disclosure.
Relaxing the transparency requirement would be viewed favourably by those issuers seeking to develop actively managed products but who remain reluctant to do because of the risks of investors front running or crowding out their strategies.
While a number of issuers proposed the use of proxy portfolios or making the ETF’s full portfolio available to just a limited number of authorised participants, the CBI insisted that transparency provided “clarity” to market participants who were thereby better able to discern the quality of the underlying investments.
Gerry Cross, Director of Policy and Risk at the Central Bank of Ireland, commented, “This exercise has been extremely useful to further the debate, both domestically and internationally, in relation to ETFs. We regard the publication of this feedback statement as a continuation of this discussion and not the conclusion of our work. We remain firmly of the view that where regulatory change is needed, it is most effective when implemented on a consistent basis. This is why we will continue to actively contribute and collaborate within Europe and at IOSCO, seeking progress on the issues identified as part of DP6.”
Not everyone found the exercise useful, however. Indeed, some respondents found the discussion frustrating, contending that the regulator was unhelpfully re-opening previously debated topics.