Throughout the year regulators have focused on liquidity, and as this year draws to a close, that focus shows no signs of diminishing. “Asset managers need to step up their efforts to ensure the liquidity of their funds is adequately managed and that they are prepared for future shocks” – that was the closing remarks from Steven Maijoor’s Keynote Address at EFAMA’s Investment Management Forum which heavily focused on liquidity risk.
On Wednesday, the Securities and Exchange Commission (SEC) approved 3 to 2, the 458 page derivative use rules aimed at enhancing the regulatory framework for derivatives in the U.S. The Investment Company Act limits the ability of registered funds and business development companies to engage in transactions that involve potential future payment obligations, including obligations under derivatives such as forwards, futures, swaps and written options. The new rules, which apply to mutual funds, exchange-traded funds (ETFs), close-end funds, as well as business development companies, will permit funds to enter into these transactions if they comply with certain conditions outlined below, which are designed to increase investor protection.
Last month it was great to see a number of key liquidity developments finally enter into force, including: ESMA’s new guidelines on liquidity stress testing in UCITS and AIFs, The FCA’s new rules for certain open-ended funds investing in inherently illiquid assets; and Article 37 MMF Reporting for both Q1 and Q2.
The Canadian Securities Administrators (CSA) has published guidance to help investment fund managers (IFMs) develop and maintain effective liquidity risk management (LRM) frameworks for investment funds.
The 30 September compliance deadline is fast approaching for a number of liquidity developments. Including: ESMA’s new guidelines on liquidity stress testing in UCITS and AIFs. The FCA’s new rules for certain open-ended funds investing in inherently illiquid assets. FCA and Bank of England survey to review the liquidity mismatch in open ended funds Article 37 MMF Reporting for both Q1 and Q2.
On 2nd September 2019, the European Securities and Markets Authority (ESMA) published its final guidance regarding liquidity stress tests of investment fund…
Last week we took a brief look at the liquidity risk management regime in Hong Kong. This week, moving slightly southwest, and staying in the same continent, we review the liquidity risk requirements in Singapore. In 2018, the same year Hong Kong made amendments to its Fund Manager Code of Conduct, the Monetary Authority of Singapore (MAS) issued new Guidelines on Liquidity Risk Management Practices for Fund Management Companies (Guidelines).
Although liquidity risk management practices vary in different jurisdictions, in most cases, asset managers are required to monitor the liquidity of the fund on a frequent basis. Whilst many aspects of the regulations are broadly similar, differences can be seen from what is considered “liquid”, and around methodology to liquidity buckets, stress testing and reporting requirements. In Europe for example, neither UCITS nor AIFMD specify a specific methodology for calculating liquidity. This is in contrast to the US SEC Liquidity Risk Management Framework requirements which set out a specific methodology to be followed, although that methodology is not without its shortcomings.
This month marked one year since the collapse of Neil Woodford’s LF Woodford Equity Income fund. The Woodford fund was suspended in June, after it became overwhelmed by redemption requests from investors. One year on and investors are still awaiting their final pay-out. One year on and questions concerning the liquidity mismatches in open-ended funds still remain.
As discussed in previous blogs, later this year new FCA rules for open-ended funds investing in inherently illiquid assets enters into force. The new rules concern non-UCITS retail schemes (NURS) that invest in inherently illiquid assets. Although the new rules are relevant to anyone with an interest in open-ended investment funds that are likely to hold illiquid assets, here we will be focusing on the enhanced oversight of depositaries.