More focus on UCITS liquidity risk management

The European Securities and Markets Authority (ESMA) published a press release yesterday (30 January 2020) announcing the launch of a common supervisory action (CSA) with national competent authorities (NCAs) focusing on the supervision of UCITS managers' liquidity risk management.  

The CSA will be carried out during 2020 and aims to ensure consistent supervision across the EU (the implication being that, in ESMA’s view at least, the supervision of UCITS’ liquidity management by NCAs has to date not been as consistent as it could have been). The CSA will include the Financial Conduct Authority (FCA) and UK UCITS – even though the UK’s withdrawal from the EU takes effect later today.  

The CSA will be a two-stage process. First, NCAs will get an overview of the supervisory risks faced by requesting quantitative data from a large majority of the UCITS managers based in their respective member states. In the second stage, NCAs will then focus on a selected sample of UCITS managers and UCITS, to carry out more in-depth supervisory analyses.

UCITS managers – with UK, Irish or Luxembourg UCITS in their portfolios – should therefore expect to receive regulatory requests for data in the coming months. Managers of UK UCITS should also be aware that the FCA is, separately, doing its own domestic work on liquidity management. This is currently a key priority for the FCA, as set out in its Dear CEO letter to asset managers earlier this month.