Esma delivers verdict on Ucits liquidity management

Ucits liquidity managementLiquidity management of Ucits funds have largely passed scrutiny by the EU financial watchdog, but firms are warned that improvements may be needed.

The European Securities and Markets Authority (Esma) said that “in some cases” liquidity assessment before investing should be strengthened, as well as data reliability verification and internal controls.

Esma published its 2020 Common Supervisory Action of Ucits liquidity risk management this week, saying that compliance with the applicable rules was satisfactory in most cases.

Where some “adverse supervisory findings” were identified, this mainly linked to documentation, procedures and methodology.

Esma said funds houses should critically review their liquidity risk management to makes sure none of the adverse findings were in their frameworks.

The Ucits regulatory framework includes a broad range of liquidity risk management provisions which aim to ensure that investors are able to redeem their investments on request.

Steven Maijoor, Esma chair, said: “Overall, [regulators] reported that most Ucits managers have demonstrated that they have implemented and applied sufficiently sound liquidity risk management processes. However, the exercise also identified shortcomings in a few cases and the need for improvements in certain key areas.

“Consequently, NCAs are following up with market participants to address the supervisory findings identified in the CSA at the individual and collective level.”

Last year, Esma called on fund managers with significant exposure to corporate debt and real estate to be prepared for future adverse shocks. Each of the five measures proposed at the time related to liquidity, including increasing the range of liquidity management tools available.

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