Exchange-traded fund (ETF) providers have scotched concerns their products are non-transparent and required no independent oversight.
BetaShares head of investment strategy and distribution Drew Corbett said ETFs had exactly the same custodial agreements and reporting requirements as any managed fund.
“Because all of our funds are registered managed investment schemes, they are regulated by ASIC and are audited twice per year by PwC, except for the gold one, where we have a specific gold bullion auditor,” Corbett said.
“Advisers should take comfort in the fact that ETFs are regulated in the same fashion as all registered managed investment schemes.
“Advisers should understand that ETFs are no different from managed funds in that regard. In actual fact, ETFs are more transparent than managed funds because we publish the holdings on our website in a more frequent fashion.”
He said the underlying holdings BetaShares published each day on its website were provided directly by its custodians, including RBC Dexia and JP Morgan.
The comments came after the principal at a Melbourne-based financial planning group voiced concerns about ETFs, a market that has grown 70 per cent each year over the past three years to nearly $5 billion in assets and has $1.38 trillion globally.
The principal, who did not wish to be named, said the local industry had a right to be sceptical about any products booming in popularity, given fund failures since the global financial crisis and increased regulation and compliance requirements on advisers.
ETF providers needed to provide assurance to advisers that they were investing in physical assets and the data and disclosure they provided to investors had been independently verified, the principal said.
IShares Australia head Mark Oliver said all of the firm’s ETFs were subject to stringent standards of disclosure and audit under the Corporations Act, recognised international regulatory frameworks and Australian Securities Exchange (ASX) listing rules.
“Essentially the funds are subject to the very same or similar requirements of any managed investment schemes,” Oliver said.
“So in the case of Australia, it is effectively the same regime a managed fund would have to reach under the Corporations Act.
“In addition to that we have the ASX listing rules, which require at a minimum annual audited reports and accounts.”
State Street Global Advisors (SSgA) SPDR ETFs were regularly audited with internal controls and external controls, SSgA head of ETFs for Asia-Pacific Frank Henze said.
“ETFs that are managed investment schemes are in general audited on an annual basis like any other investment fund with a smaller interim review after six months,” Henze said.
“The audit is concerned that income and fees are correctly accounted for and that the contracting parties discharge their duties according to the management agreement.
“It is the responsibility of the fund’s board, supervisory committee or responsible entity that the asset manager is fit to run the funds, that the assets are custodied correctly and that the regulations which govern the fund are observed, and that all entities involved with the fund are held to account.”
