As has been widely publicised, ETFs continue to be a focus of various regulatory bodies including the Central Bank of Ireland (‘CBI’). The CBI released its discussion paper in 2017 and continues to have an open dialogue on matters raised in the paper with industry participants and other regulators. The key discussion points in the CBI paper appear to be focused on particular areas such as transparency of portfolio holdings of active ETFs and non-ETF share classes.

While this level of focus on ETFs may appear on the face of it to be challenging, we are continuing to see significant growth in the space. No matter which ETF growth projection you read, global ETF assets under management are expected to at least continue their annual growth rate of approximately 20% for the foreseeable future. Europe remains in line with the global ETF growth rates and given that Ireland is the largest European domicile for ETFs and indeed second largest in the world, this is certainly good news for the industry locally.

Existing ETF sponsors as well as managers thinking about entering the ETF arena will need to look at their business models to ensure they are fit for purpose. ETFs tend to be lower fee products, generally considered to be one of their key benefits for investors. As a result, existing operational models that might work for other investment products, may not be as successful or sustainable for ETFs. PwC conducts an annual survey of global ETF stakeholders – including managers and service providers. In our latest ETF survey, we asked participants about the impact that these fee pressures were having on their businesses. Answers ranged from creating and leveraging research to tools to assist their teams and clients to an increase in outsourcing.

Service providers also find themselves facing the same challenges given the downward fee pressure. Pressures, as with every challenge, also create opportunities. When we asked our survey participants about how the use of technology would impact ETFs, a third (33%) saw this as an opportunity to reduce costs. As we outlined in our Live Digital or Die paper (https://www.pwccn.com/en/asset-management/technology-impacting-etfs.pdf), technology can potentially change many aspects of the business model – from operations to distribution to product creation. Navigating the ever-changing emerging technologies is not without its challenges and the ability to leverage from knowledge and experience in this area will be crucial to success.

The growth and innovation of ETFs presents both challenges and opportunities for ETF sponsors, service providers and regulators. Evolving issues with respect to products, markets, distribution, technology and investor preferences will help to shape the future.