Providers call for labelling reform for ETFs

Leading providers of exchange-traded funds are calling for tougher regulation of the market and warn more transparency is needed to protect investors.

BlackRock, the world's largest provider, wants clearer labelling of ETFs to distinguish them from similar-sounding products which are riskier, as part of regulatory reform proposals.

Joe Linhares from ETF provider iShares said: "Since inception, ETFs have offered a range of benefits including transparency, cost efficiency and a broad range of asset classes. But, in recent years, new products have emerged with less transparency and more complexity threatening to tarnish a financial innovation."

In their simplest form, ETFs invest in a market by holding the shares of an index. More complex products, such as "leveraged ETFs", can provide twice the amount if the index rises or falls, which is a lot riskier.

Advisers also back the move to distinguish ETFs. Darius McDermott, managing director of Chelsea Financial Services, said: "ETFs should be simple products. If there are more complicated versions, they should be labelled complex."