UK regulatory delays are dissuading European ETF issuers

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Several firms with new exchange traded fund vehicles have yet to register their products in the UK due to Brexit-related regulatory delays.

Amundi, Abrdn, BNP Paribas Asset Management and Axa Investment Managers have all launched Irish ETF umbrellas in the past two years that have yet to be registered in the UK.

The funds were launched after the end of the Brexit transition period in December 2020, when it stopped being possible for EU funds to automatically get UK recognition under the Ucits marketing passport regime.

The Financial Conduct Authority launched a consultation on a post-Brexit overseas fund regime in early December, but it has yet to confirm when it will come into force.

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

There are currently no ETFs domiciled in the UK, so all products available to UK investors are overseas funds.

Amundi said: “The Amundi ETF Irish Icav is not registered in the UK for regulatory reasons related to Brexit.

“We will continue to analyse regulatory changes and evaluate opportunities for local fund registrations where available.”

Amundi launched the Irish ETF vehicle last year, having previously focused on Luxembourg as an ETF domicile.

The manager has since shifted at least 10 ETFs from Luxembourg to Ireland and has notified UK retail investors that they no longer have the same access to some of the funds.

BNP Paribas AM, which has also shifted its ETF focus from Luxembourg to Ireland, said it was in the process of registering its Irish Icav in the UK.

Axa IM and Abrdn both chose Ireland as a domicile for their nascent ETF businesses.

Axa IM said: “We are expanding our range and have to be pragmatic and tactical in the choice of the countries where we register and list our products, based on our clients’ needs.”

“The UK is one of the main ETF markets in Europe, and a very competitive and cost-intensive market, which requires important adaptations to our range,” it added.

“For those reasons, in our progressive approach, we have decided to prioritise other countries.”

Adrian Whelan, global head of market intelligence at Brown Brothers Harriman, said Brexit and the absence of the overseas fund regime (OFR) were among the reasons for the funds not registering in the UK.

Overseas funds looking to register in the UK currently have to go through the so-called section 272 process.

Whelan says: “Those familiar with this process know it’s complicated, legally expensive, and timelines are long and uncertain.

“As such, most new ETF issuers feel on their cost-benefits analysis that launching the funds and focusing on markets other than the UK to begin with is a smarter move.

“Denmark and German savings plans have been big Ucits ETF purchasers throughout 2023 for example.”

Whelan said there “could be a growth spurt” of new ETFs in the UK when the OFR is implemented, depending on its final form.

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“OFR won’t be like the near seamless access Ucits had before, but it will certainly make entry somewhat easier and less expensive than the current situation,” he added.

Michael O’Riordan, founding partner at Blackwater Search and Advisory, agreed that Brexit was the main cause and said it was currently taking managers around a year to register new Icavs in the UK.

He said this was the case for impact-focused asset manager Circa5000, which registered an Irish vehicle in the UK earlier this year.

O’Riordan said: “I am sure all these managers [ . . .] are in the process and so will enter the UK market once they have approval. It’s just taking time.”

*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.