Serious Fraud Office to investigate ETF market

The Serious Fraud Office (SFO) has launched a high level review of the potential dangers posed by ETFs, weeks after the FSA and Bank of England expressed their own concerns.

A spokesman for the SFO said the department had spoken to organisations including the Bank of England and the FSA and said the potential risks associated with ETFs was a subject often raised in its regular conversations with professional services organisations.

"It is an area slightly outside our expertise, which is why we are looking to others for help. What concerns us is what's not immediately apparent with such investments, whether that be the way they are being presented to investors, the underlying value of the collateral base or where they are domiciled", the spokesman said.

"We do not want to tread on the regulatory toes of the FSA but we are trying to check the pulse", he added.

Last month the Bank of England and the FSA added their voices to a debate which started in earnest in April when the Financial Stability Board raised concerns over swap-based exchange-traded products, as well as associated risks around transparency and liquidity.

The Bank of England's new Financial Policy Committee has said the FSA should "monitor closely the risks associated with opaque funding structures, such as collateral swaps or similar transactions employed by ETFs".

The FSA, for its part, is "looking very closely at these products" and working with its European counterparts to monitor risk, director of conduct policy Sheila Nicoll said last month.