Press Release For immediate release Tuesday 8 January 2019

​EFAMA and AMIC publish joint report on liquidity stress tests in investment funds

Report highlights strong existing framework for Liquidity Stress Testing


Brussels - The European Fund and Asset Management Association (EFAMA) and the International Capital Market Association’s Asset Management and Investors Council (ICMA’s AMIC) have published a joint report on Liquidity Stress Testing (LST) in investment funds.

The report highlights the role of stress tests as an important risk management tool which allows the fund manager to assess the impact of different market stresses at the portfolio level. Moreover, it outlines the long-standing standard practices in the fund industry and the existing comprehensive requirements foreseen by European and national laws.

The report also finds that existing rules governing stress testing, notably the UCITS Directive and AIFMD, are already at an advanced level, and provide robust and appropriate liquidity risk management processes.

Based on the analysis, and in view of ESMA’s ongoing work on Guidance for national regulators in respect to LST for investment funds, EFAMA and AMIC have pinpointed three key findings:

  1. A principles-based approach on the Liquidity Stress Testing governance and oversight is the optimal  way forward;
  2. Proportionality is key for setting the right framework for LST, allowing the heterogeneous fund sector to tailor stress tests to the profile of the fund, their respective investors and the invested assets; and
  3. Given the existing robust EU regulatory framework, regional and national authorities should now focus on minimising operational impediments and facilitating asset managers’ discharge of their liquidity risk management duties, by ensuring that they can avail themselves of a broad range of liquidity management tools.

As availability of, and access to, data concerning the underlying investors remains a key challenge, regulators should assist asset managers in obtaining information from distributors that is relevant from a redemption risk management perspective.

Liquidity Stress Testing is an important risk management tool in investment funds. It has long been standard practice in the industry, and its proper supervision is key to protecting investors and ensuring the financial stability of the wider system. EFAMA and AMIC welcome the principles-based approach taken by IOSCO in its recommendations for Liquidity Risk Management for Collective Investment Schemes. Both organisations believe it strikes the right balance between providing necessary guidance and preserving fund manager flexibility to act in the best interests of all shareholders in a variety of circumstances.

Tanguy van de Werve, EFAMA Director General, commented: “European fund managers can today rely on very robust and comprehensive regulatory frameworks for liquidity risk management. The effectiveness of our risk management systems has been successfully tested over the last years, most notably during the euro crisis and the Brexit referendum.”

“However, some improvements still need to be made to provide all managers with the appropriate liquidity management toolkit and facilitate their access to key data. Together with AMIC, EFAMA will continue to monitor and work closely with all relevant global, regional and national authorities to ensure policy development in this area remains realistic, proportionate and meaningful.”

Martin Scheck, ICMA Chief Executive, commented: “This study is the latest in a series of joint reports with EFAMA on systemic risk in asset management, following papers on liquidity risk management in 2016 and leverage in 2017. It is designed to highlight the robustness of liquidity stress testing programs in Europe and the need for a flexible, principles-based regulatory approach in this area. ”

AMIC and EFAMA look forward to contributing further to this debate and assisting global regulators in their discussions.

- Ends -

Please click here to download a full copy of the joint report on liquidity stress tests in investment funds.

Notes for editors

EFAMA is the representative association for the European investment management industry, which
represents 28 member associations and 62 corporate members. At end 2017, total net assets of European investment funds reached EUR 15.6 trillion. Close to 32,000 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) and close to 28,300 of these funds were AIFs (Alternative Investment Funds). Including discretionary mandates, third-party regulated asset managers managed EUR 25 trillion in Europe at end 2017. For more information about EFAMA, please visit www.efama.org.

International Capital Market Association (ICMA)
The International Capital Market Association’s (ICMA) Asset Management and Investors Council (AMIC) was established in March 2008 to represent the buy-side members of the ICMA membership. ICMA represents more than 550 institutions active in the international securities market and promotes internationally accepted standards of best market practice. Visit www.icmagroup.org

For media enquiries, please contact:

Tanguy van de Werve, EFAMA Director General Telephone: +32 (0) 2 513 39 69 info@efama.org

Patrik Karlsson, ICMA AMIC Telephone: +44 20 7213 0339 patrik.karlsson@icmagroup.org

Margaret Wilkinson, ICMA Telephone: +44 20 7213 0323 Margaret.wilkinson@icmagroup.org