Ireland moves closer to relaxing ETF transparency rules, lawyers say

Ireland’s financial regulator is planning to review its rules on portfolio transparency for exchange traded funds, according to lawyers.

The Central Bank of Ireland, which regulates Europe’s largest domicile of ETF assets, requires the products to disclose their full portfolio holdings daily, but this is seen by many as a barrier to the growth of active ETF investment strategies.

However, Hazel Doyle, partner at K&L Gates, said the CBI has told members of the Irish asset management trade body that it would review the rules later this year.

Brian Higgins, partner at Dillon Eustace and chair of Irish Funds’ ETF working group, confirmed this, saying that the regulator’s review “in itself is a positive”.

This article was previously published by Ignites Europe, a title owned by the FT Group.

Relaxing the rules “will widen the scope for active [ETFs]”, Higgins said.

When asked about its plans, a CBI spokesperson said the regulator was “open to engaging with industry on this issue”, but added that “a change to the current requirements for ETF portfolio disclosures” was not in its “imminent work planning” for 2024.

Ignites Europe previously reported that the CBI was considering reviewing its rules in 2022, amid concerns that active managers were reluctant to disclose their holdings every day — in effect divulging their intellectual property — and run the risk of rival investors front-running their positions.

Europe’s active ETF market has attracted new issuers since then, with existing ETF providers Ark Invest and BNP Paribas among firms to have expanded into active products in the EU earlier this year.

Janus Henderson and Eurizon are also planning to enter the European ETF market with active strategies.

Andrea Murray, vice-president of investor services at Brown Brothers Harriman, said a growing number of European active asset managers “reluctantly” accepted the fully transparent ETF model.

“They can look across the [Atlantic] and see flows flooding transparent active products and less so for semi-transparent ETFs,” Murray said.

Doyle, who was speaking at an ETFGI conference, agreed, saying: “I don’t know if the horse has kind of bolted already [and] everyone is kind of giving their portfolio transparency now.”

However, a loosening of ETF disclosure rules, such as bringing them in line with mutual funds, is likely to boost demand for active firms, experts said.

Murray said that if regulations turned in favour of a less transparent model in Europe, there would “without doubt” be a new set of asset managers “finally” willing to open the door to ETF discussions.

“In today’s environment, they can acknowledge the benefits of the ETF structure as a wrapper but disclosing their secret sauce remains a non-negotiable,” she said.

Doyle added that “at least” firms would have “two options” if the Irish regulator allowed ETFs to provide less frequent holdings disclosure.

For many years, ETF providers have kept a close eye on whether the CBI would change its stance on portfolio holdings disclosure.

In 2017, the Irish regulator published a study that prompted it to evaluate whether the rules should be loosened to promote innovation in the ETF space, specifically to encourage the emergence of active ETFs.

But a year later the CBI shied away from this step, citing investor protection concerns.

In 2019 the US regulator gave the green light to new models of non-transparent ETFs, with more firms launching active equity ETFs in the market as a result.

This gave rise to renewed hopes that the CBI would follow the US lead, only for those hopes to be dashed once more.

Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.