The Central Bank of Ireland (CBI) is planning to update the UCITS Q&A and will provide an introduction to the ETF market by launching a listed share class for existing Irish-domiciled funds, making it an ideal option for mutual managers looking to enter the ETF market. Rather than building a platform, it would be more practical. Offering ETFs.
At an event hosted by Vanguard and Arthur Cox on Thursday, CBI Deputy Governor Derville Rowland said the regulator had listened to industry feedback and worked with other European regulators.
“As a result, we will be updating the UCITS Q&A soon to align our approach with other foundation headquarters and clarify our position,” Rowland said.
“In the future, the UCITS ETF identifier could be included at the sub-fund or share class level. Provides clearer information.”
Fund promoters already have the ability to launch listed and unlisted share classes within the Irish Collective Asset Management Vehicle (ICAV), but no major asset manager has exercised that option, with the exception of HSBC Asset Management last year. .
This is due to the CBI’s interpretation of the European Securities Market Association (ESMA) nomenclature introduced in 2012. This allows fund managers to launch ETF share classes, even if most of the fund’s share classes are unlisted and represent a large portion of its assets under management (AUM).
The CBI’s interpretation of the ESMA nomenclature rules is due to the more lenient stance of the Financial Supervisory Board (CSSF), which requires the use of the ‘UCITS ETF’ identifier only for ETF share classes of sub-funds domiciled in Luxembourg. suffered a profit. .
This, coupled with the CSSF’s more accommodative approach to UCITS-eligible assets, has led to the launch of Europe’s first Collateralized Loan Obligations (CLO) ETF, the Fair Oaks AAA CLO UCITS ETF (FAAA), as a share class in the firm’s existing CLO active funds. It was decided that they would be welcomed. .
“It’s very positive, long expected and very welcome.”
Following Thursday’s announcement, Catherine Dwyer, Corporate Authorization and Complex Products Advisor at the CBI, commented on Linkedin: A mix of listed and unlisted share classes. ”
Unsurprisingly, the CBI’s change in stance received widespread approval from Irish service providers and lawyers.
Adrian Whelan, global head of market intelligence at Brown Brothers Harriman, told ETF Stream that the update is “obviously very positive, long anticipated and very welcome news.” .
“We believe this will level the playing field for UCITS and UCITS ETFs in Ireland compared to other domiciles, particularly Luxembourg, and will lead to some UCITS mutual funds considering adding the ETF share class to their repertoire. I predict.”
“Many were thoroughly contemplating whether to launch a range of mutual funds as well as a range of ETFs, so this additional option is available to both new entrants and existing UCITS participants in Ireland. It’s a positive for investors, but ultimately it’s a better outcome for the investor’s choice. ”
Stephanie Hanrahan, senior associate at Arthur Cox, agreed, calling the development “very positive” and saying Ireland’s approach was in line with other European countries.
“This change will enable managers managing Irish-domiciled mutual funds to consider introducing ETF share classes without having to consider the impact of changing the fund name,” Hanrahan added.
Stephen Carson, partner at A&L Goodbody, added: Of course, we have to see exactly what the UCITS Q&A update is, but this is definitely a step in the right direction. ”
Why do fund managers require ETF share classes?
Carson went on to say that existing mutual fund ETF share classes allow fund managers to benefit from the scale of their existing funds, rather than launching a separate ETF platform, and that the idea of entering ETFs is He pointed out that it would make it “more acceptable.”
“This makes it a more realistic prospect for fund managers looking to enter ETFs through this channel, but it is difficult to say how advanced managers’ plans are in this situation.
“However, there are also many who see this as a barrier, so it will definitely help these managers include this among the options available to them when entering the ETF market.”
Hazel Doyle, partner at K&L Gates, said launching an ETF share class comes with its own complexities, but it also offers speed-to-market, scale, reduced or shared costs, and new distribution for asset managers. He said he expected “significant benefits” such as improved channels.
Doyle noted Vanguard’s enthusiasm for public and private equity classes in the U.S. after the patent expires (26 managers have filed with the Securities and Exchange Commission), Managers considering the class should be aware of the “operating framework, investment management and significant tax implications.”
last word
As the debate over listed share classes gains attention, operational issues and nuances around the tax benefits of Irish-domiciled ETFs may face question marks, but Irish industry remains united This opens a new door for legacy fund managers to become the fastest in Europe. Growing fund structure.
