European Commission looks at synthetic ETF crackdown

20 September 2011

The European Commission has warned of the dangers of synthetic Exchange Traded Funds, and said some firms were using UCITS rules as a “shield”.

In a speech at the FSA Asset Management Conference in London today, EC head of asset management, Tilman Lueder, added there were concerns around using derivatives as exposure for ETFs. Lueder said: “Those offering ETFs and the synthetic variable of it are using UCITS as a shield of defence. If the industry is using UCITS as a shield, the regulator is entitled to see if it complies with UCITS and if we think there are issues it's our prerogative to see that the UCITS rules must be changed. We are not relaxed about ETFs, especially the synthetic ETFs. If you cannot buy it because it is not sufficiently liquid or somewhat exotic, why would you want exposure from a derivative contract?”

FSA Conduct Business Unit director of policy, Sheila Nicoll, later also voiced her concerns over ETFs. She said: “I was very pleased to hear Tilman talking about ETFs. That is clearly a European issue and it needs to be dealt with on a pan-European level. We will play our part in that process.”

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