Exchange Traded Funds: A Regulatory Overview

Exchange Traded Funds: A Regulatory Overview

The growing popularity of ETFs has revealed vulnerabilities that have previously not been addressed by regulators.

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Evolution of the ETF product

Since they were first launched 25 years ago, Exchange Traded Funds (ETFs) have become one of the most successful investment products offered to investors. They have proved to be innovative financial vehicles, which have shaped how investors invest and how the market itself functions.

The growth in the ETF market has been extraordinary, to the extent that global assets under management have increased from USD 400 billion in 2005 to some USD 3 trillion in 2015. In Europe, the ETF market is worth USD 454 billion. Ireland 2 has been a major beneficiary of this extraordinary growth in the ETF market and is currently Europe’s leading ETF domicile with USD 247 billion in assets under management, representing 54% of the European market.

But there are issues that need to be addressed

The growing popularity of ETFs among retail investors, along with the huge growth in assets under management, have revealed vulnerabilities that have previously not been addressed by regulators.In response, regulators, in the last four years, have launched several initiatives on a European and global level aimed at increasing investor protection and strengthening market integrity.

The following provides a brief overview of the specific initiatives that have shaped, and will continue to influence regulation for ETFs in Europe.

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