On 7 March, the European Banking Authority (EBA) issued an opinion addressed to the National Supervisory Authorities (NSAs) on Good Practices for the Risk Management of Exchange Traded Funds (ETFs).
ETFs are generally securities that track a commodity, an index, or a basket of assets like an index fund, but trade like a stock of an exchange and therefore experience price changes throughout the day. The EBA Good Practices attempt to ensure that potential risks associated with ETFs are managed adequately from the perspective of the credit institution and, indirectly, from the perspective of its customers. They will ultimately contribute to the convergence of supervisory culture and practices in the EU. The good practices include a list of relevant questions to assist NSAs in giving an adequate picture of banks' involvement in the ETF business, and the adequacy of banks' management of associated risks such as liquidity and market risks. The Good Practices are adopted as an EBA opinion under Article 29(2) and are, therefore, not legally binding. This is where implementation will depend on the specific characteristics of the credit institutions concerned as well as on their involvement in ETF operations.