ESMA - Liquidity Management Tools for funds
ESMA consulted for 3 months, up to 8 October 2024, on draft guidelines and Regulatory Technical Standards (RTS) for liquidity management tools (LMTs) under the revised AIFMD and UCITS Directive. The draft guidelines provide guidance on how managers should select and calibrate LMTs and the draft RTS specify the characteristics of the LMTs.
More details can be found here.
EC - Assessing the adequacy of macroprudential policies for non-bank financial intermediation (NBFI)
In May 2024, the European Commission (EC) published a 6 month consultation until
22 November 2024 aimed at identifying the vulnerabilities & risks of NBFIs and mapping the existing macroprudential framework. Also, they were looking to gather feedback on current challenges to macroprudential supervision and discuss areas for further improvement.
AREF collaborated with other EREF members on its response which was overseen by AREF's Public Policy Committee.
The European Securities and Markets Authority (ESMA) submitted its own response to the EC's consultation. In their response, ESMA recognised the progress in relation to the provision of liquidity management tools in AIFMD. However, ESMA still considered that there is a need to address some remaining issues concerning liquidity mismatches in open-ended funds. In particular, they support the Recommendation of the Financial Stability Board that competent authorities could require funds that invest in assets that are not liquid to be structured as closed-ended funds. This wasn't supported by AREF in its response to the FSB consultation on Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (More details can be found below).
Central Bank of Ireland - Macroprudential policy for investment funds
In July 2024, the Central Bank of Ireland (CBI) published its Feedback Statement to its Discussion Paper (DP11): An approach to macroprudential policy for investment funds. More details can be found here.
FSB - Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds
Following on from its consultation earlier in the year, in December 2023 the Financial Stability Board (FSB) published its Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds. The revised recommendations supersede Section 2 of the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The recommendations form part of the FSB’s work programme on non-bank financial intermediation (NBFI) and should be read in conjunction with the IOSCO Guidance on Anti-Dilution Liquidity Management Tools (LMTs) (See below).
More details about the background to the FSB's recommendations and AREF's response to the consultation report can be viewed here.
IOSCO - Guidance for Open-Ended Funds use of Anti-Dilution Liquidity Management Tools
In coordination with the above FSB report,the International Organization of Securities Commissions (IOSCO) published in December 2023, after an earlier consultation, its Final Report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes (FR/15/2023).
More details about the report and AREF's response to the prior consultation can be viewed here.
IOSCO - Liquidity Risk Management Recommendations for Collective Investment Schemes
On 11 November 2024, IOSCO published two consultations on:
- Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”) (the ‘Revised LRM Recommendations’), especially for open-ended funds.
- Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management (“Implementation Guidance”).
The revised recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (see above)
More details about IOSCO's Revised LRM Recommendations and the Implementation Guidance can be found here.
Central Bank of Ireland - Macroprudential measures for property funds
In November 2022 the Central Bank of Ireland ('CBI') published its Feedback Statement to CP145: Macroprudential measures for the property fund sector.
CBI Introduced two policies that are part of its framework on property funds macroprudential policy:
- A sixty per cent leverage limit on the ratio of property funds’ total debt to their total assets and;
- Guidance to limit liquidity mismatch for property funds.
The measures apply to Alternative Investment Fund Managers ('AIFMs') of Alternative Investment Funds (AIFs”') that are domiciled in Ireland, authorised under domestic legislation, and investing fifty per cent or more directly or indirectly in Irish property assets.
More details about these measures and their implementation can be found here.
Liquidity Management Contingency Plans
AREF has produced a template AFMs of FIIA can use as a basis for their requests for information from intermediate holders. View more information on the Liquidity Management Contingency plan here.
Recommendations of the European Systematic Risk Board on liquidity risks in investment funds
The General Board of the European Systematic Risk Board adopted a Recommendation to the European Securities and Markets Authority (ESMA) to coordinate with the national competent authorities in undertaking a focused piece of supervisory engagement with investment funds that have significant exposures to corporate debt and real estate assets.
The General Board emphasised that it is important that liquidity management tools are used in a timely manner, as necessary in such circumstances, especially by funds that invest in less liquid assets or assets that become temporarily illiquid and have short redemption periods.
Fund Suspensions
AREF, DATA (Depositary & Trustee Association) and The IA joint Suspensions Q&A guide can be downloaded here.
FCA letter on effective liquidity management
On 4th November 2019 the FCA published an open letter to AFMs on effective liquidity management.
Real estate fund behaviour following the EU referendum
April 2017 - The Independent report commissioned by AREF on real estate fund behaviour following the EU referendum.
FCA - Liquidity management for investment firms: good practice
February 2016 - Update from the FCA on liquidity management for investment firms
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