The European Fund and Asset Management Association (EFAMA) does not expect a “wave of new asset classes for ETFs” following the review of UCITS-eligible assets by Europe’s financial watchdog.
It was thought the consultation, launched by the European Securities and Markets Authority (ESAM) in May, would lead to asset classes such as cryptocurrencies and commodities to be eligible under UCITS.
However, Federico Cupelli, deputy director for regulatory policy at EFAMA, told ETF Stream this is unlikely to be the case.
“I would not expect a ‘wave’ of new asset classes for ETFs, but rather a gradual opening-up and only to the extent that key supervisors will be comfortable with not taking a strict ‘look-through’ approach for some of the underlying asset classes, physical commodities for example,” he said.
ESMA launched a review into the Eligible Asset Directive (EAD) after national regulators across Europe started to interpret the rules differently.
Crypto ETPs have been seen as one such area. Their growth in Europe and the introduction of spot bitcoin ETFs in the US shone the spotlight once more on crypto assets' ineligibility for UCITS.
In its official response to ESMA’s consultation, EFAMA said it did not see “an immediate need for a Level 1 change”, but said EU-wide guidelines would encourage “greater convergence between member states”.
Commenting on crypto specifically, EFAMA said making the asset class UCITS eligible was “too broad and nuanced a topic” to be addressed in the consultation, noting that indirect access via exchange-traded products (ETPs) removes challenges such as specialised crypto asset custody set up.
It added any findings should “not damage the reputation” of the UCITS brand and should focus on maintaining regulatory stability.
“The global reputation of the UCITS as an effective conduit for retail investors is built on being a secure, well-diversified, liquid, and transparent collective investment vehicle,” EFAMA said.
“It is also critical to ensure that changes to the UCITS framework do not damage the reputation of the UCITS as a regulatory export brand.”
The current EAD rules have not been updated since their inception in 2007, with the variety of instruments traded on financial markets increasing considerably during that time.
