ESMA and NCAs launch joint action on UCITS liquidity risk management

ESMA has announced today (30 January 2020) that it will be conducting a Common Supervisory Action (CSA) during 2020 on the supervision of UCITS’ managers liquidity risk management across the EU. This work will be undertaken alongside the national competent authorities (NCAs) of the various EU Member States.

The UCITS framework is based largely on the premise that investors can redeem their investments on request. As a result, it includes a broad range of liquidity risk management provisions which are intended to ensure financial stability, investor protection and the orderly functioning of financial markets.

The NCAs have agreed to assess whether market participants in their jurisdictions are adhering to the rules in their day-to-day business – this assessment will be undertaken using a common methodology developed with ESMA.

The first stage of the CSA will involve each NCA requesting the large majority of the UCITS managers in its jurisdiction to supply quantitative data in order to get an overview of the supervisory risks faced.

The second stage will be focussed on a sample of UCITS managers and UCITS and will entail more in-depth supervisory analyses.

Throughout 2020, NCAs will share their findings through ESMA to ensure that there is supervisory convergence in how they supervise liquidity risk management.

The CSA should be seen as a further example of the concern that ESMA and national regulators have been showing over the past year and more regarding the issue of liquidity – and, in particular, liquidity of retail funds.

See our earlier articles ESMA publishes Final Guidelines on Liquidity Stress Testing in UCITS and AIFs (16 September 2019), FCA rule changes ahead for NURS investing in illiquid assets (28 October 2019) and The FCA’s Dear CEO Letter to Asset Managers (24 January 2020) for further information