On Sep. 2, ESRB responded to ESMA consultation on RTS, guidelines.
ESRB published its response to the ESMA consultation on draft regulatory technical standards (RTS) and guidelines on liquidity management tools, issued in Jul. 2024.
Builds on ESRB issues note of Sep. 2023 on high-level approach to addressing risks.
Follows ESMA Jul. 2024 consulted on fund liquidity management tools, see #218755.
Also follows ESRB Sep. 2023 note of policy options for certain funds, see #183798.
ESRB Response
Summarizes first stage of ESRB work to adapt certain policy tools to reflect revised AIFMD, UCITS Directive and on assessing need for new tools to reduce systemic risk.
Considers 3 policy tools that can be adapted to better serve financial stability issues.
First, sets out how structural liquidity mismatch in real estate funds could be reduced by ensuring closer alignment between the fund's redemption terms and its investment strategy by introducing longer notice periods and a lower redemption frequency.
Second, discusses how financial stability could benefit if investment funds used anti-dilution liquidity management tools (LMTs) to mitigate first-mover advantage.
Third, describes how liquidity stress testing framework for investment funds could incorporate liquidity risk stemming from margin and/or collateral more effectively.
ESRB considers that extension of notice periods requires an appropriate baseline, proposes minimum baseline notice period of 12 months, where no mitigating factors.
ESMA guidance around anti-dilution LMTs should consider collective actions by fund managers and changing market circumstances, and clearly define exceptions.
ESRB calls for clearer inclusion of margin preparedness in ESMA Guidelines on liquidity stress testing for fund managers, and to further strengthen fund risk management framework to consider risks arising from margin and collateral calls more thoroughly.
Regulators
EU ESRB
Entity Types
Depo; HF; IA; Inv Co
Reference
Lt, 9/2/2024; ESMA34-1985693317-1095, ESMA34-1985693317-1097; AIFMD Dir 2011/61, Dir 2024/927; UCITS Dir 2014/91, Dir 2009/65; ESG
