ESMA consults on liquidity management tools
On 8 July 2024, the European Securities and Markets Authority (ESMA) published the following consultation papers related to the use of liquidity management tools (LMTs) by UCITS and open-ended AIFs:
Finalising the detailed characteristics of LMTs in the level 2 draft RTS together with level 3 guidelines is a key step in the implementation of the revised Alternative Investment Fund Managers Directive (AIFMD) and the revised Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.
Background
Directive (EU) 2024/927 (otherwise known as AIFMD II) amending the UCITS Directive and AIFMD as regards delegation arrangements, liquidity risk management, supervisory reporting, depositary and custody services and loan origination is to be transposed by Member States into national law by 16 April 2026, with some rules subject to a transition period.
The AIFMD and UCITS Directive enhancements relating to liquidity management are intended to enable a more effective response to liquidity pressures in times of market stress and better protection of investors.
AIFMD II include mandates for ESMA to develop the draft RTS and guidelines.
Selecting LMTs
AIFMs of open-ended AIFs and UCITS are required to select at least two (or one in the case of money market funds) appropriate LMTs from those set out in the amended AIFMD and UCITS Directive, after assessing the suitability of those tools in relation to the funds’ pursued investment strategy, its liquidity profile and its redemption policy. The selected tools must be included in the fund rules or instrument of incorporation. These tools are:
From the above LMTs, the selected LMTs may not only include swing pricing and dual pricing. In addition to the selected LMTs, the temporary suspension of subscriptions, repurchases and redemptions or activating side pockets will be permitted in exceptional circumstances.
Redemption in kind can only be activated to meet AIF or UCITS redemptions requested by professional investors and if the redemption in kind corresponds to a pro rata share of the assets held by the fund. However, a redemption in kind does not need to correspond to a pro rata share of the assets where the fund is marketed solely to professional investors, or if is an ETF fund whose investment policy is to replicate the composition of a certain stock or debt securities index.
Detailed policies and procedures for the activation and deactivation of any of the selected LMTs and the operational and administrative arrangements for the use of such tool must be implemented. The selected LMTs and the detailed policies and procedures must be communicated to the national competent authority (NCA) of the UCITS or AIFM.
AIFMD II requires that an AIFM or UCITS must notify its home state NCA, without delay, where it activates or deactivates suspension of subscriptions, repurchases and redemptions or any of the ‘selected’ LMTs in a manner that is not in the ordinary course of business as envisaged in the AIF/UCITS rules or instruments of incorporation. In addition, an AIFM or UCITS shall notify its home state NCA within a reasonable timeframe before it activates or deactivates side-pockets.
FCA publishes policy statement on the Overseas Funds Regime
The Financial Conduct Authority (FCA) has published a policy statement relating to the Overseas Funds Regime (OFR). PS24/7 sets out feedback the FCA received in relation to CP23/26 and final rules and guidance necessary to implement the OFR.
Following the feedback to CP23/26, the FCA has:
The new FCA Handbook rules and guidance will come into force on 31 July 2024.
The FCA intends to open the gateway to new funds (i.e. those not currently not in TMPR) in September 2024. New funds will be able to apply at any time from that date without a landing slot.
Landing slots for funds currently in the TMPR will start from October 2024. The FCA will issue a ‘direction’ by email to the chief compliance officer of each fund in the TMPR eight weeks prior to the fund’s landing slot opening providing information on how to apply to enter the OFR. Issuers should review the FCA’s register to ensure that the information included is correct and ensure that the FCA has the correct contact details. The FCA can be notified of any changes by emailing recognisedcis@fca.org.uk.
Full details of the policy statement may be found at Overseas Funds Regime: Update for firms | FCA.
ESMA speech on shortening the settlement cycle (T+1)
ESMA Chair Verena Ross delivered a speech at the public hearing on shortening the settlement cycle (T+1). This follows ESMA's call for evidence on the topic.
ESMA's preliminary view is that the adoption of the Central Securities Depository Regulation (CSDR) in 2014 was a significant milestone in the path towards more standardised and less fragmented markets by harmonising settlement cycles on T+2. ESMA believes now is the time to look ahead and set a new objective and continue working towards more efficient post-trade processes, thereby contributing to more efficient and more attractive EU capital markets.
ESMA will submit its report on T+1 to the European Parliament and the Council at the latest by mid-January 2025, as required by CSDR Refit. In the meantime, stakeholder engagement will continue.
ESMA publishes 2023 data on cross-border investment activity of firms
ESMA and NCAs published an analysis of the cross-border provision of investment services during 2023. The data sets were collected from investment firms across 30 jurisdictions in the EU/EEA.
The insights gained from the analysis will allow ESMA and the NCAs to better understand and monitor cross-border investment services provided by firms in the EU/EEA. ESMA will perform the next data collection in 2025.
AML/CFT/FS
Monaco and Venezuela added to FATF ‘grey list'; Turkey and Jamaica removed
At its plenary meeting in June, FATF announced that it had made decisions on the AML/CFT risk status of Monaco, Venezuela, Turkey and Jamaica.
Monaco and Venezuela were added to FATF’s ‘grey list’ of jurisdictions subject to increased monitoring, while Turkey and Jamaica were removed from the grey list following improvements in their systems.
The updated ML/TF risk factors guidelines were translated into all EU languages and published
ML/TF guidelines on money laundering (ML) and terrorist financing (TF) risk factors were extended to include crypto-asset service providers (CASPs). The updated guidelines were translated into all official EU languages and were published on the EBA website on 28 June 2024. The guidelines will apply from 30 December 2024.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
