ESMA has published the results of the 2020 Common Supervisory Action (CSA) on UCITS liquidity risk management (LRM). UCITS are characterised by the offer to investors of on-demand liquidity. Article 84(1) states that UCITS shall repurchase or redeem its units at the request of any unit-holder. If the assets held within the fund cannot be sold quickly to meet redemption requests, there could be severe issues in paying redeeming investors. This can be exacerbated in times of stress when investors may look to redeem en masse whilst the market for the assets is drying up.
This week we return to our refresher series on liquidity risk rules around the world, and in particular, the rules in the United States. With the COVID-19 vaccine rollout well underway, and the end of crisis in sight, we thought we would look back at how the volatility last year caused by COVID impacted the US market and compliance with SEC liquidity rules.
Welcome to the first monthly regulatory round-up of 2021. Each month we will be summarising the key announcements and regulatory developments impacting the fund industry. The past month brought developments on a range of issues, from updated FAQs and guidelines impacting UCITS and AIFMs, to consultations…
Yesterday, ESMA announced that it will be launching a Common Supervisory Action (CSA) with national competent authorities (NCAs) on the supervision of costs and fees of UCITS across the European Union. The CSA aims to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation of not charging investors with undue costs.
During the CSA, national competent authorities will take into account the supervisory briefing on the supervision of costs published by ESMA in June 2020.
The past month brought important developments on topics such as fund liquidity, costs and fees charged by fund managers, AIFMD, UCITS and Money Market Funds. Most notably, in the UK, HM Treasury published the responses to the consultation on the Overseas Funds Regime, and the Financial Services Bill…
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.
Despite the continuing focus on the rapidly rising COVID-19 infections rates in the US & Europe, the looming Lockdown 2.0, and the impending, potentially contentious race for the White House, October saw regulators press ahead with the launch of several significant fund regulatory developments.
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.
On 22nd October 2020, the European Commission (EC) published the much anticipated consultation on the Alternative Investment Fund Managers Directive (AIFMD).
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.