How safe are my ETF assets? | BetaShares

How safe are my ETF assets?

BY betashares | 6 May 2014
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ETFs in Australia are regulated by the Australian Securities and Investments Commission (“ASIC”) as registered “managed investment schemes” (“MIS”) which means ETF issuers are governed by a detailed and strict set of regulations regarding the management of assets. To understand how safe ETF assets are, we need to understand the MIS rules – the laws which apply not only to ETFs but also to most traditional managed funds, and the fund’s constitution or governing rules.

A strict set of standards

MIS rules impose strict controls on what the fund provider can do with the MIS assets including only being able to buy and sell assets in accordance with the investment rules set out in the fund’s constitution and Product Disclosure Statement (“PDS”).

As an investor, this means once your money has been deposited to the investment manager, it can only be used for the specific purpose outlined in the PDS.

The MIS rules also require the assets owned by the MIS to be held on trust for the benefit of investors and held separately from the assets of the ETF issuer, the assets of any other fund and the assets of the custodian appointed to hold the assets. The assets cannot be transacted, moved or altered in any way other than by the authority of the issuer (the trustee) of the fund.

What happens if an ETF issuer ceases business?

If the ETF issuer ceases business, the assets will continue to be held for the ultimate benefit of investors. The assets do not form part of the personal assets of the ETF issuer and are not available to any creditors of the ETF issuer.

A business failure at the level of the ETF issuer won’t have any impact on the security of the assets, ultimately the investors’ funds held in the MIS. If this were to occur, a new manager would be appointed and the MIS would continue to operate. Alternatively, if the MIS were to be wound up, the liquidator would sell the assets of the MIS, and the net proceeds would be paid to the MIS unitholders in proportion to the number of units they held.

This illustrates how the MIS rules operate to separate the assets of the fund from the operator of the fund and also illustrates why MISs are commonly considered to be subject to the highest level of investor protection regulation available for Australian investors.

BetaShares ETFs are MIS structures and the assets of each of our funds are displayed on the BetaShares website. For example, the definitive list of gold bullion bars held in the BetaShares Gold Bullion ETF is listed here. These bullion bars are held in the JP Morgan bullion safe custody vault in London.

Investors should be aware they can still lose money from market movements and other investment risks, but the MIS structure provides a high level of protection to ring-fence the ETF’s assets for the benefit of investors.  While ETFs are considered a relatively “new” product, they are governed by the same strict principles as traditional managed funds, where a portion of your superannuation money is likely to be held.

2 Comments

  1. Martin  |  February 6, 2020

    Hi, i am concerned with Custodians of your ETFs offered. I spoke to ASSIC and they say they have no control or rules for overseas banks, so a German bank you use for custodian, what happens if they go bust, the assets are claimed to be separate from creditors so cant be touched in theory?, but has a ETF customer ever lost his units and money because of bank collapse in the past. What guarantees i wont as i have your ETF BBUS with Deutsche bank as custodian? Hard questions i ask, but theres billions in these funds and the past GFC crashes and everyone lost everything, did ETFS also lose their assets? So i have to ask as ASSIC says only that countries regulator control those banks. With so much money at stake, its prudent to be concerned especially with a world economic downturn coming and Germany?? hmm

    .and i have read yours and others info on “how safe are your money in etfs” in the sites

    thanks for any help you can provide in reassuring me that the money is safe in in the worst circumstances- Coming!!! haha

    1. Gavin Montgomery  |  February 10, 2020

      Hi Martin,

      Thanks for reaching out. In general, the assets of a BetaShares Fund held by the appointed external custodian are held on trust for the benefit of the relevant Fund and do not form part of the custodian’s own assets. This means the Fund’s assets are not available to creditors of Deutsche Bank in the unlikely event the they experience financial difficulty.

      An exception to this is where the Fund’s cash is placed on deposit with a bank. In that circumstance the bank holds the Fund’s cash as banker, not trustee, and the Fund, like all depositors, is exposed to credit risk generally associated with bank deposits. BetaShares U.S. Equity Strong Bear Fund’s cash is held on deposit with Deutsche Bank, which is prudentially regulated by APRA in Australia.

      I hope this helps.

      Sincerely,
      BetaShares Client Services

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