It also proposes 15 principles against which both the industry and regulators can assess the quality of regulation and industry practices relating to ETFs regarding investor protection, sound functioning of markets and financial stability.
Interest in ETFs has increased worldwide as evidenced by the significant amount of money invested in these types of products. This dynamic growth has drawn the attention of regulators who are concerned about the potential impact of ETFs on investors and the marketplace.
To address these concerns, the Consultation Report proposes 15 principles that reflect a level of common approach and are a practical guide for regulators and industry practitioners. The proposed principles address ETFs that are organised as Collective Investment Schemes (CIS) and are not meant to encompass other Exchange-Traded Products (ETPs) that are not organised as CISs.
14 of the proposed principles are categorised under the following three headings:
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Principles related to ETF classification and disclosure
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Principles related to Marketing and Sale of ETF shares
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Principles related to the structuring of ETFs.
The Consultation Report also considers the potential broader risks to financial stability arising from ETFs and other ETPs. It suggests that regulators should bear in mind that recommendations made for the ETF industry may be applied elsewhere to other areas of financial services. These potential broader risks include the following:
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risks arising on secondary markets (the risk of shock transmission);
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ETFs and market integrity (risk of misconduct);
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risks to financial stability.
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