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January 31, 2018 at 11:14 PM
With the number and variety of ETFs rapidly increasing, and total assets under management at an all-time high, ETFs have earned an extra level of scrutiny from regulators globally, according to PwC.
A new report from PwC looks at how regulations and taxes are shaping the future of ETFs.
The growth and innovation of ETFs have already been shaped by the regulatory and tax environment, for better and worse.
According to the PwC 2016 Global ETF Survey, which drew global responses from more than 65 ETF managers, sponsors and service providers, almost 90% believe that regulations and taxes have had either a significant or moderate impact on ETF growth and innovation.
“Given that minimizing tax impact is a central selling point for many ETFs, sponsors will have to shape their product offerings according to the tax structures of specific markets,” PwC states. “They’ll also have to understand, and adapt to, unfamiliar regulatory regimes.”
Regulations
In the United States, there continues to be growing interest in periodically disclosed active ETFs, or also known as “nontransparent active” ETFs. The Securities and Exchange Commission (SEC) is evaluating different periodically disclosed active ETF models.
Among U.S. respondents in the PwC 2016 Global ETF Survey, 43% see the approval of periodically disclosed active ETFs as being most impactful to the U.S. ETF industry.
According to PwC, the growth and innovation of ETFs could be “significantly impacted” with the approval of one or more of the proposed periodically disclosed active ETF models.
(The NextShares exchanged-traded managed funds, which were approved in 2015, are “not an ETF as currently defined” and thus weren’t considered for this report, a PwC spokesperson said.)
Another regulation that PwC examines in the report is the Labor Department’s fiduciary rule. While the rule’s implementation has been delayed, the Securities and Exchange Commission is also drafting a proposed fiduciary standard rule.
According to PwC, the Labor rule has already benefited ETFs and will likely continue to do so as many advisors have shifted allocations to low-cost investment products.
