Policymakers need to improve the level of harmonisation across different European jurisdictions for the continent’s ETF market to catch up with the US, according to Frank Mohr, global head of ETF sales trading at Société Générale and Véronique Dang Vu, product engineer at Société Générale Securities Services.

Speaking at ETF Stream’s ETF Ecosystem Unwrapped event, Dang Vu (pictured right) said progress since the introduction of TARGET2-Securities (T2S) had been disappointing.

“Policymakers have to make more of an effort, along with the regulators in different countries, to harmonise everything,” said Vang Du. “We worked a lot on T2S and we had a lot of hopes for that but after five years, it is still a bit disappointing.

“We have cross border channels but there are still various barriers between these different markets to have a full European market.”

Meanwhile, Mohr (pictured left) said the US could be a source of inspiration and would be the “ideal” to aim for in terms of standardisation of regulations.

“The ideal would be to have the same environment as the US, but we are far away from that,” Mohr continued. “Every step closer of course helps but we need more of this. Harmonisation should hopefully lower the cost.”

The ETF market in the US has flourished with strong price competition between different providers. The regulatory challenges of Europe has proven a disadvantage here, making it harder for providers to pass savings onto investors. This is a particular issue of concern for new entrants.

“You have to bear in mind the costs here in Europe are higher,” Vang Du said. “There is a very high rate of fails, due to the complexity and costs of investing across various countries and transferring ETF shares over multiple exchanges.

“The solution is to have a more harmonised way of settling, rather than putting pressure on the ones who bring the liquidity in the first place – the market makers.”

However, as growing ETF flows in Europe indicate, the market is growing and evolving. Greater engagement from retail investors is strengthening liquidity and providers are launching new products to meet this burgeoning demand.

“You cannot compete with vanilla ETFs here,” she continued. “However, there is still room for innovation and particularly ESG and thematic ETFs.

“To enter the market you need to invest in knowledge though, to get a good setup with optimised and efficient relationships with everyone you need to do business with. You also need to reach size and volume, if after a few years you have not reached €100m in size you are at risk.”