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Brussels warned against inclusion of ETFs in new 'shadow banking' rules

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  • Brussels warned against inclusion of ETFs in new 'shadow banking' rules

EUROPE - The German investment fund association (BVI) has warned the European Commission against including money market funds and exchange-traded funds (ETFs) in its 'shadow banking' remit, arguing that the two vehicles are already "sufficiently regulated".

Brussels has now set its regulatory sights on the unregulated financial instruments and institutions that make up the so-called 'shadow banking' sector, which some lawmakers believe to have been a major contributor to the financial crisis.

The BVI, however, has taken exception to the Commission's inclusion of money market funds and ETFs in its initial proposals.

Thomas Richter, managing director at the association, pointed out that these funds were already subject to the same "strict" regulations as "traditional", actively managed funds.

He welcomed "long overdue" rules for unregulated financial instruments, particularly those using 'maturity transformation' or leveraging by loans, or those that risked destabilising markets if sold by investors en masse.
 
"But these criteria do not apply to ETFs or money market funds, most of which are registered under the UCITS framework," Richter said.

Any additional regulation of these funds should be considered within existing frameworks, he said.

"Our industry certainly cannot lament a lack of regulation," he added, pointing out that investment funds had "neither triggered the financial crisis nor reinforced it".

The BVI's statement came as part of a consultation launched in Brussels, which called on the industry to help define the 'shadow banking' industry.

In its statement, the European Commission conceded that, to a certain extent, 'shadow banking' performs "important functions" in the financial system.

But it maintained that the industry could also pose "potential threats to long-term financial stability".

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