ESMA to focus on UCITS liquidity risks

The chair of the European Securities and Markets Authority (ESMA), Steven Maijoor, delivered the keynote address at the European Fund and Asset Management Association (EFAMA) Investment Management Forum in Brussels earlier today. In his address, Mr Maijoor focused almost exclusively on liquidity risk in UCITS funds and the role of asset management in supporting financial stability and investor protection.  

The speech covered the long-running concern of liquidity in asset management, the supervisory action and liquidity requirements under UCITS and how fund liquidity is a core activity for ESMA. Interestingly, Mr Maijoor announced that, during the course of next year, ESMA will be leading a "common supervisory action" with national regulators to focus on UCITS liquidity risk and ensure consistent supervision across the EU – the implication being that, in ESMA’s view at least, national regulators’ supervision of UCITS’ liquidity management has not been as consistent as it could have been.  

Mr Maijoor also emphasised that the existing UCITS regulatory framework already requires UCITS managers to employ appropriate liquidity risk management processes and to ensure the liquidity profile of underlying assets is in line with their funds’ redemption rules – the suggestion being that new rules are not (yet) needed, but that instead the existing rules should be applied and supervised better. 

For UCITS managers, this all points to increased scrutiny of their liquidity risk management systems and procedures in the year ahead.