The Central Bank of Ireland publishes feedback statement on the ETF discussion paper
The Central Bank of Ireland publishes feedback statement on the ETF discussion paper
October 2018
The much-anticipated feedback statement following the release of DP6 on Exchange Traded Funds by the Central Bank of Ireland (CBI) was released 14 September 2018. Ireland has long been the domicile of choice for European ETFs, with the vast majority of European ETFs now domiciled in Ireland, so the CBI’s continued focus on this growing sector comes as no surprise.
The CBI’s statement focuses on the key themes explored in DP6 and summary responses received from the industry. Its statement demonstrates the CBI’s commitment to supporting current European and International work streams on ETFs, such as IOSCO’s newly launched ETF work stream, one of many ongoing ETF-specific regulatory forums. The CBI’s feedback statement has been largely well received by the industry, although its decision to retain the requirement for daily portfolio disclosure comes as a disappointment to active managers.
There are two specific decisions included in the statement that are welcomed by the industry. First is the decision by the CBI to permit listed and unlisted share classes within the same sub fund. The concept of an ‘ETF’ share class has been long anticipated and it will be interesting to see the uptake from the European industry. Asset managers are likely to explore this route to entry for its potential to be more cost-effective than launching a new ETF structure. It is not without its challenges however, and the tax benefits offered to an ETF structure should not be ignored and therefore close examination of tax implications should be considered. Further guidance on this is to follow.
The second welcome decision is allowing different dealing deadlines for hedged and non-hedged share classes, similar to the approach taken currently for in kind / versus cash orders. This is expected in revised policy and will be welcomed by Authorised Participants (APs) and Issuers alike as it offers further flexibility for order taking on hedged versus unhedged classes.
The CBI is expected to examine further a number of other themes below following the release of the statement:
- Further transparency on the remuneration of APs and Official Liquidity Suppliers (OLPs), which the CBI deems ‘best practice’ not just for an ETF but for the asset management industry as a whole.
- Clarity on the role of APs and OLPs and their interconnectedness; the CBI views disclosure on the role of APs and OLPs as important for all participants.
- While daily portfolio disclosure remains a requirement of the CBI, through its feedback statement, the CBI demonstrates a commitment to consider this further. Openness to further exploration in this area will be welcomed by the industry.
- Consistency of direct redemption policies and uniformity regarding the listing of ETFs remain a challenge across Europe and the CBI is looking towards further consistency across both of these themes.
So what’s next? Guidance notes are expected imminently from the CBI on the change of policy regarding listed and unlisted share classes and flexibility with regard to dealing deadlines of different share classes within the same fund structure, after which issuers will be in a position to submit applications to the CBI.
Further review of the themes left open by the CBI such as the APs and OLPs framework and daily portfolio disclosure will continue and we continue to watch this space as potential changes emerge.
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