ESMA published final version of the Guidelines on liquidity stress testing in UCITS and AIFs


ESMA published final version of the Guidelines on liquidity stress testing in UCITS and AIFs

4 September 2019

Regulatory News Alert

In April 2018, the European Systemic Risk Board (ESRB) published a set of recommendations to address liquidity and leverage risk in investment funds. The ESRB’s recommendations requests that European Securities and Markets Authority (ESMA), in order to promote supervisory convergence, “develop guidance on the practice to be followed by managers for the stress testing of liquidity risk for individual AIFs and UCITS”.

On 5 February 2019, ESMA published a Consultation Paper (CP) based on the draft Guidelines on Liquidity Stress Testing in UCITS and AIFs in order to fulfil the ESRB recommendations and gather input from stakeholders. The consultation closed on 1 April 2019.

Following the consultation period, on 2 September, ESMA published the Final Report on the Guidelines on liquidity stress testing in UCITS and AIFs (Guidelines). The Guidelines provide an overview of the feedback received through the responses to CP and explain how ESMA took this feedback into account.

The purpose of the Guidelines is to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision and to ensure the common uniform and consistent application of Union law. In particular, their primary purpose is to increase the standard, consistency and, in some cases, frequency of liquidity stress tests (LST) of assets and liabilities and promote convergent supervision of LST by national competent authorities (NCAs).

The Guidelines apply to managers, depositaries and NCAs:

  • Guidelines applicable to managers provide further clarification on the design of the LST models, governance principles for LST, the LST policy, frequency of LST, the use of LST outcomes, adaptation of the LST to each fund, LST scenarios etc.
  • Depositaries should set up appropriate verification procedures to check that the fund manager has in place documented procedures for its LST program, whereas such verification does not require assessment of the adequacy of the LST.
  • NCAs may at their discretion request submission of a manager’s LST to help demonstrate that a fund will be likely to comply with applicable rules or other information relating to the LST, including liquidity stress test models and their results.

ESMA expects the Guidelines to be applied by 30 September 2020.


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