Regulator Interview: ESMA’s Steven Maijoor discusses ETFs

Steven Maijoor, chairman of the European Securities and Markets Authority, talks to about latest guidelines on exchange-traded funds (ETFs) and the investigations it has planned for these increasingly complex investments. Richard Jory and Hannah Collins report.

What does the European Securities and Markets Authority (Esma) make of exchange-traded funds, and where does it believe these investments fit within the regulatory architecture of the European Commission?

A first important summary of our thinking on the exchange-traded funds front is contained in the document Esma published at the end of January, in the form of draft future guidelines for ETFs within the Ucits framework.

However, also important is the European Commissions’ packaged retail investment products (Prips) initiative, because there are some products very similar to ETFs that are sold outside the Ucits framework. What we are saying is that no matter whether a product is within or outside the Ucits world, if there are products that have similar characteristics as ETFs, such as exchange-traded notes, you would, in principle, like to have the same type of protection for investors.

Obviously, the Ucits directive covers disclosure, but it’s not concerned with distribution rules, which will be dealt with under the revised Markets in Financial Instruments Directive (Mifid II).

At a higher level, we are concerned primarily about investor protection. Some of the basic characteristics of ETFs, let’s say the bread and butter ETF, can have a high value for the retail investor, but we have seen certain developments that raise concerns in terms of product complexity and whether retail investors understand what they are buying. In addition, there are issues relating to securities lending and total return swaps, in the sense that: are there any risks that parties cannot meet their obligations?


What are the legislative responsibilities for the governance of retail products and ETFs in the European Union?

The Ucits directive is decided upon by the European Commission, together with the Council and the European Parliament, so Esma cannot obviously change this Level 1 text.

The reason we published the draft ETF guidelines is that there needs to be detailed guidance that, in principle, explains the Level 1 text to national supervisors and in a second stage to market participants. Once these guidelines become definitive, the national supervisors then must decide whether they intend to comply with them and, if they cannot, must explain why.

Our role is to provide guidance on the correct application of the directive, which itself of course has a different legal status. Alternatively, Esma can give advice to the Commission on its legalistic proposals, which we do frequently. In all the versions of the Ucits directive, we have given commands to the European Commission on their proposals.


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