The assets under management in the European ETF industry are quite concentrated at the classification, promoter, and ETF levels. Therefore, it is no surprise that the assets under management are also concentrated at the ETF domicile level. Ireland, the largest European ETF domicile, held 72.66% (€1,393.0 bn) of the overall assets under management (€1,917.0 bn as of September 30, 2024) in the European ETF industry. This is far ahead of Luxembourg, the second largest ETF domicile in Europe, which holds 18.39% (€352.5 bn) of the overall assets under management. It is followed by Germany (3.50%), Switzerland (2.54%), and France (2.31%). As a result, the five largest ETF domiciles in Europe have a market share of 99.39% at the end of September, which means that the concentration of assets under management is higher at the domicile level than in any other part of the industry.

Even as Ireland was the largest ETF domicile from the start of the European ETF industry, it lost its leading position to France between September 30, 2003, and September 30, 2009, as French ETF promoters grew quickly and had most of their ETFs domiciled in France. During that time period, assets under management in ETFs domiciled in Luxembourg also grew very fast but never reached the scale of Ireland.

Graph 1: Market Share of Assets Under Management in the European ETF Industry (June 30, 2000 – September 30, 2024)

Source: LSEG Lipper

Nevertheless, as European ETF promoters started to build cross-border distribution channels, they realized that ETFs domiciled in local fund/ETF domiciles are often neglected by investors in other countries. This is because funds/ETFs are often tailored to the needs and regulatory requirements in those domiciles and to the needs of international investors. As a result, ETF promoters in Europe re-domiciled large parts of their product ranges over time to one of the international fund hubs. While continental ETF promoters preferred Luxembourg at the beginning, Anglo-Saxon ETF promoters preferred Ireland.

These preferences changed when ETF promoters looked more closely at the regulatory and taxation related differences between the international fund hubs and chose the one which offered the most advantages for their respective ETFs. These advantages could allow them to offer their products at lower cost or help increase promoter profits.

Therefore, it is no surprise that there is also competition at the domicile level. The latest evidence for this can be seen in the speech ‘Past, present and future of Exchange Traded Funds’ held by Derville Rowland, Deputy Governor of the Central Bank of Ireland (CBI) – the Irish regulator – who said that CBI will change its ETF naming rules for ETF share classes of existing funds to literally the same standard as Luxembourg. This is because the current Irish rules are seen as a hindrance for the launch of ETF share classes by industry participants. The same is true when it comes to eligible assets for ETFs. As the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg has approved the first ETF investing in collateralized loan obligations (CLOs), which was launched as an ETF share class from an existing mutual fund, it is to be expected that the CBI will allow CLOs as underlying for ETFs rather sooner than later.

From my point of view, the competition at the domicile level will go on in the future, but only time will tell which domiciles will suite the needs of the European ETF industry best.

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