The European Securities and Markets Authority (ESMA) is seeking input on draft guidelines and technical standards. These pertain to the revised Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.
Both directives aim to reduce financial stability risks and promote harmonization of liquidity risk management in the investment funds sector.
Guidelines for LMT Calibration
The draft Regulatory Technical Standards (RTS) define the characteristics of Liquidity Management Tools (LMTs). This includes calculation methods and activation mechanisms. ESMA has also released draft guidelines on LMTs for UCITS and open-ended AIFs.
These guidelines provide instructions on how managers should select and calibrate LMTs. This selection should consider their investment strategy, liquidity profile, and redemption policy.
“The revised AIFMD and UCITS Directive have introduced long-awaited provisions on the availability and use of Liquidity Management Tools. ESMA is now consulting on how to apply these provisions in practice,” said Verena Ross, ESMA Chair.
“These new rules being proposed are in line with the latest global standards provided by the FSB and IOSCO, and will contribute to the strengthening of the EU regulatory and supervisory regime for investment funds.”
Earlier, ESMA released its second Final Report on the Markets in Crypto-Assets Regulation, detailing eight draft technical standards, as reported by Finance Magnates. These aim to enhance transparency for retail investors and clarify disclosure and record-keeping requirements for providers. The standards also introduce data protocols to aid National Competent Authorities in supervision.
ESMA Seeks Consultation Input
The RTS and guidelines aim to promote consistent application of the directives for UCITS and open-ended AIFs. They also aim to better equip EU fund managers to handle liquidity in market stress situations. Additionally, they clarify the functioning of specific LMTs, such as side pockets, a practice that varies across the EU.
The publication of these consultations is a key step in implementing the new AIFMD and UCITS Directive. ESMA invites responses to the consultations by 8 October. ESMA will deliver the final RTS and guidelines by 16 April 2025.
