UCITS ETF equivalence a boon for London listings

The move will make it easier for new issuers to list on the LSE

Theo Andrew

London Stock Exchange

The UK government’s decision to grant equivalence for UCITS ETFs under the Overseas Fund Regime (OFR) earlier this week will provide a huge boost for the UK’s ETF industry.

The Treasury’s announcement is likely to be a boon for ETF listings in the UK and the focus will now turn to the Financial Conduct Authority’s (FCA) consultation on its final rules for the OFR application process.

Peter Capper, senior advisor of international fund regulation at the Investment Association said the move will be celebrated by issuers in the UK and on the continent.

“This week’s announcement is welcome news for UK and EU ETF providers, who can expect the OFR to become operational for UCITS later this year, which will make it easier to list new ETFs in London,” he said.

"ETFs are generally UCITS funds established in the EU and rely on FCA recognition as a condition of listing on the London Stock Exchange.”

Many of these ETFs are provided by UK-based investment managers and since Brexit it has become increasingly challenging and costly for new issuers to come to market.

“New UCITS ETFs, which are not in the Temporary Marketing Permissions Regime (TMPR), have faced the choice of either using the expensive and complex Section 272 route to list or listing on a different European exchange with lower trading pools,” Capper explained.

The impact of this has already been felt, with European giants including Amundi and AXA Investment Managers opting to wait until there is more clarity before registering their Irish Collective Asset-management Vehicles (ICAVs) for sale in the UK.

Commenting on the Treasury’s announcement, Emma Garnham, senior associate at Macfarlanes, said it was a “significant milestone” for the industry.

“We welcome the announcement of the equivalence decision, which marks a significant milestone for the asset management industry,” she said.

The move will cover the European Economic Area (EEA), which covers 27 EU member states as well as Iceland and Luxembourg. Despite this, Switzerland – which has a significant ETF presence in Europe – is not covered in the announcement, according to the Treasury.

The FCA will now determine whether the proposed administrative processes should apply to ETFs, with an announcement expected in April.

ETF Stream understands the UK regulator is likely to apply the same application process for the wrapper, with a few differences due to the unique distribution of UCITS ETFs as a pan-European product versus other structures.

Manooj Mistry, COO at HANetf welcomed the development but added the shape the application process for ETFs remains to be seen.

"The only open question for me is the detail process for passporting/registering and whether there would be any additional requirements [and costs] especially for someone setting up a new UCITS platform and not able to benefit from the TMPR provisions," Manooj said.

"For example, Switzerland recognise UCITS but the passporting/registration process involves additional steps [and costs] which would not be the case if you were part of the EU."


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