ETFs
Ireland moves closer to relaxing ETF transparency rules, lawyers say
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Ireland’s financial regulator is considering reviewing its rules on transparency of exchange-traded fund portfolios, according to lawyers.
The Central Bank of Ireland, which regulates Europe’s largest headquarters for ETF assets, requires products to disclose their full portfolio daily, but this is seen by many as a barrier to the growth of active investment strategies ETFs.
However, Hazel Doyle, a partner at K&L Gates, said the CBI had told members of Ireland’s asset management body it would review the rules later this year.
Brian Higgins, partner at Dillon Eustace and chair of Irish Funds’ ETF working group, confirmed this, saying the regulator’s review “is in itself positive”.
This article was previously published by Set Europe on firea title belonging to the FT group.
The relaxation of the rules will “expand the scope of active activities”. [ETFs]”Higgins said.
Asked about its plans, a CBI spokesperson said the regulator was “willing to engage with the industry on this issue”, but added that “a change in current portfolio disclosure requirements ‘ETF’ was not part of its ‘imminent work plan’ for 2024.
Set Europe on fire before reported that the CBI was considering reviewing its rules in 2022, amid concerns that active managers are reluctant to disclose their holdings every day – in effect disclosing their intellectual property – and run the risk of rival investors taking over their positions .
Europe’s active ETF market has since attracted new issuers, with existing ETF providers Ark Invest and BNP Paribas among the firms expanding into active products in the EU earlier this year.
Janus Henderson and Eurizon are also considering entering the European ETF market with active strategies.
Andrea Murray, vice president of investor services at Brown Brothers Harriman, said a growing number of European active asset managers were “reluctantly” accepting the fully transparent ETF model.
“They can look through the [Atlantic] and we will see flows flooding into transparent active products and less into semi-transparent ETFs,” Murray said.
Doyle, speaking at an ETFGI conference, agreed, saying: “I don’t know if the horse has ever run away. [and] everyone is kind of giving transparency to their portfolio now.
However, a relaxation of ETF disclosure rules, for example by bringing them in line with mutual funds, is likely to boost demand for active companies, experts say.
Murray said that if regulation moved towards a less transparent model in Europe, there would “undoubtedly” be a new group of asset managers “finally” willing to open the door to ETF discussions.
“In the current environment, they may recognize the benefits of the ETF structure as a hedge, but disclosing their secret sauce remains non-negotiable,” she said.
Doyle added that “at least” firms would have “two options” if the Irish regulator allowed ETFs to provide less frequent information about their holdings.
For many years, ETF providers have been closely monitoring whether the CBI would change its stance on disclosure of portfolio holdings.
In 2017, the Irish regulator published a study which prompted it to assess whether rules should be relaxed to promote innovation in the ETF space, particularly to encourage the emergence of active ETFs.
But a year later, the CBI backed away from the move, citing investor protection concerns.
In 2019, the US regulator gave the green light to new non-transparent ETF models, which allowed more companies to launch active stock ETFs in the market.
This revived hopes that the CBI would follow the American example, but these hopes were once again dashed.
Ignites Europe is a news service published by FT Specialist aimed at professionals working in the asset management sector. Trials and subscriptions are available at igniteseurope.com.