Financial Services Ireland

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Regulatory focus on value for money in ETFs

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New regulations will challenge ETF providers to demonstrate leadership on value – which is about much more than price.

How can the exchange-traded funds (ETF) industry stay ahead of new regulation that requires promoters to do more to assess and demonstrate investor value? This is the issue we explore in the first part of the latest EY ETF article series, which you can download below.

While Markets in Financial Instruments Directive II (MiFID II) and Packaged Retail and Insurance-based Investment Products (PRIIPS) have already increased transparency over charges, the UK’s Asset Management Market Study (AMMS) will require providers to revisit factors such as the value eroded by trading costs, the relative merits of index construction, and the degree to which stock lending income is used to offset fund costs.

This issue is crucial not only for ETF providers with an existing or planned presence in the UK market. Our analysis suggests that the UK Financial Conduct Authority’s (FCA) decision to take a firm stance on investor value could influence, or be copied by, other regulators.

That’s particularly true in Europe, which already sets high standards for costs, charges and suitability through MiFID II. Whatever the future relationship between the UK and the European Union, we expect the FCA to continue to set very high standards for investor protection. The recent ESMA paper on applying UCITS standards also shows that European authorities will continue their focus on costs and disclosure.

In the longer term, the wider adoption of value assessments could have far-reaching implications for the global ETF industry, especially in major retail markets such as the US, Canada and Australia. In summary, promoters shouldn’t allow the undoubted strengths of ETFs as a low-cost investment vehicle to give them a false sense of security.

Read  our full article to find out more about the global implications for the ETF industry, and learn how to develop and implement a formal framework that will allow you to conduct value assessments and demonstrate  leadership on investor value.

Lisa Kealy

Financial Services Markets Leader
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