ESMA publishes guidelines for ETFs26-07-2012
The European supervisor ESMA has published guidelines for among other things ETFs. The AFM welcomes these guidelines and will specify how it will follow these within the time allowed. The AFM also still stands by its own earlier recommendations on ETFs. Both the ESMA Guidelines and the AFM’s recommendation provide more transparency and better protection for retail investors and other investors.
The ESMA Guidelines
The ESMA Guidelines are the result of a review of existing regulations for certain types of UCITS (investments), including ETFs (index trackers), and certain specific activities, such as efficient portfolio management techniques. This review showed that the current requirements take insufficient account of the specific features and risks of these types of products and activities. As a result of this, ESMA has now developed underlying Guidelines with the aim of improving the protection of investors and ensuring a more harmonised fund practice in the EU.
The guidelines are subject to a ‘comply or explain’ procedure. The AFM must therefore state whether it intends to follow these guidelines within two months after they have been translated into Dutch.
The AFM’s recommendations
The AFM’s report on index trackers published in June includes the findings and recommendations that emerged from a study into the clarity of various alternative products for the average retail investor in the Netherlands. Clarity was assessed on the basis of the complexity of the product structures, the effort needed to see through the operation of a product, and the adequacy of the information about the products. The findings and recommendations therefore cover both the product offering to consumers and the information sent to them. The recommendations in the AFM-report are intended as advice to the market and are not additions to the applicable laws and regulations.
How do the two reports relate to each other?
Both reports have a different background and goal. The ESMA Guidelines, which emerged from the review of existing regulations, includes broader recommendations relating to: information provision on index-tracking UCITS and UCITS ETFs, rules for UCITS that make use of OTC derivatives transactions and efficient portfolio management techniques, and criteria for UCITS that invest in financial indices. The AFM’s report, on the other hand, includes a number of specific recommendations that emerged from the study into the clarity of various types of index trackers that are marketed to consumers in the Netherlands.
The ESMA Guidelines and the AFM’s recommendations exist alongside each other and therefore do not mutually conflict.
The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.