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European Commission warning over synthetic ETFs

The European Commission has warned of the dangers of synthetic exchange traded funds and suggested Ucits V may tighten permitted investment rules.

Speaking at the FSA’s Asset Management Conference in London this week, EC head of asset management Tilman Lueder hinted that Ucits V rules, due next year, will deal with the EC’s concerns.

Lueder said: “Those offering ETFs and the synthetic variables 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 is our prerogative to see that the Ucits rules must be changed.

“We are not relaxed about ETFs, especially 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?”

In April, the Financial Stability Board expressed concerns about the rapid growth and increasing complexity of the ETF market.

In July, the Serious Fraud Office launched a review into how exchange traded funds are marketed.

Also speaking at the conference, FSA director of conduct policy Sheila Nicoll said: “ETFs are clearly a European issue and it needs to be dealt with on a pan-European level. We will play our part in that process.”

Bestinvest senior analyst Ben Seager-Scott says: “Advisers need to do their homework and find out which ETFs are suitable and which are not.”


European Commission looks at synthetic ETF crackdown

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