ICMA’s AMIC and EFAMA have submitted a joint response to the IOSCO consultation on fund liquidity management by open-ended funds.
The response highlights how industry practices and existing regulatory provisions in Europe are well aligned with the Liquidity Risk Management (LRM) recommendations issued by IOSCO in 2018 (Annex 1).
AMIC and EFAMA also acknowledge the positive impact of the LRM recommendations, as they have incentivised national supervisors to encourage and facilitate the use of LMTs, which are now available in most European jurisdictions and in all main fund domicile centres, covering almost all AuM managed by UCITS and AIFs (Annex 2).
The response notes that, in the context of the COVID-19 market downturn in March/April 2020, liquidity risk was well managed by investment funds domiciled in Europe and refers to an ESMA report which concluded that (1) out of the 174 AIFs studied, none used substantial leverage nor had to suspend redemption and (2) out of the 459 UCITS funds studied, only 6 UCITS funds suspended temporarily (up to 13 days).
This shows that fund liquidity risk management is overall sound in European funds and that existing EU rules - including those implementing IOSCO LRM - are sufficient. However, AMIC and EFAMA reiterate the need to facilitate the access to information related to shares/units held by the different categories of underlying investors to better appraise liability risks.