ESMA launches CSA on valuation of UCITS and open-ended AIFs

On 20 January 2022, ESMA announced that it was launching its third asset management-related Common Supervisory Action (CSA) with National Competent Authorities (NCAs).

The new CSA will focus on the valuation of UCITS and open-ended AIFs across the EU.

It follows previous CSAs on

• UCITS liquidity risk management (January 2020) - see our summary here; and
• supervision of costs and fees in UCITS (January 2021) - see our summary here.

The aim of the CSA is to assess how firms comply with the relevant valuation-related provisions in the UCITS and AIFMD frameworks.

ESMA’s press release on the subject notes that “[t]he current economic conditions underline the importance of assessing valuation risks which may pose a potential threat to financial stability and this exercise is of utmost importance to effectively address this risk at EU level.”

A core objective, then, is the consistent and effective supervision of valuation methodologies, policies and procedures of supervised entities to ensure that less liquid assets are valued fairly both during normal and stressed market conditions, in line with applicable rules.

The CSA will have a particular focus on the valuation of less liquid assets by authorised managers of UCITS and open-ended AIFs which investing in:

• unlisted equities
• unrated bonds
• corporate debt
• real estate
• high yield bonds
• emerging markets
• listed equities that are not actively traded; and
• bank loans.

The work will be conducted through 2022 and will use a common assessment framework, which sets out the scope, methodology, supervisory expectations and timeline.

NCAs will share knowledge and experiences through ESMA to foster convergence in how they supervise valuation-related issues.