EFAMA Rules Out Quick Expansion of ETFs

The European Fund and Asset Management Association (EFAMA) has stated that a significant expansion of asset classes, including cryptocurrencies, is unlikely following the recent review of UCITS-eligible assets, according to a new report from ETF Stream.

UCITS (short for Undertakings for Collective Investment in Transferable Securities) is a European regulatory framework for managing and marketing investment funds, including mutual funds and ETFs. Designed to protect investors, UCITS also facilitates the cross-border sale of these funds throughout Europe.

According to ETF Stream, discrepancies in how European countries interpret these rules have prompted the European Securities and Markets Authority (ESMA) to review and reassess the regulations in May 2024. The consultation initially sparked hopes for including new asset classes like cryptocurrencies and commodities under the UCITS framework.

However, Federico Cupelli, EFAMA’s deputy director for regulatory policy, downplayed these prospects.

“I don’t foresee a wave of new asset classes for ETFs. Any expansion will likely be gradual and only occur if key supervisors are comfortable with a less stringent ‘look-through’ approach for certain underlying assets, such as physical commodities,”

Cupelli told ETF Stream.

Meanwhile, the EFAMA reportedly released a statement in response to the ESMA’s review asserting that a major overhaul of UCITS rules is currently unnecessary. However, the association emphasized that clearer, EU-wide guidelines would help ensure consistent interpretation and application of these rules across different European countries.

The agency considers making cryptocurrencies too UCITS eligible was “too broad and nuanced a topic” to be fully addressed in the consultation. The association suggests that indirect access through exchange-traded products (ETPs) is a more straightforward approach as it avoids the complexities and risks associated with directly holding digital assets.

Notably, cryptocurrencies, especially in the form of exchange-traded products (ETPs), have become a key focus in the ongoing UCITS review. Their growing popularity across Europe and the recent approval of spot Bitcoin ETFs in the US have fueled the debate over whether these digital assets should be included in the UCITS framework.

Notably, the UK Law Commission recommends reforming property law to include crypto assets as a new category. The current classification of property under English law—tangible and intangible—is inadequate for digital assets like cryptocurrencies and NFTs, which blur the lines between physical and non-physical properties, complicating legal disputes.

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