UCITS and AIFs: ESMA Guidelines on liquidity stress testing

On 2 September 2019, ESMA published its final Report on the  Guidelines on liquidity stress testing in UCITS and AIFs ("Guidelines").

Both UCITS and AIFM directives already provide the obligation to implement and carry out liquidity stress testing ("LST"). The Guidelines go one-step further and specify these requirements in more detail. They also increase the standard, consistency and, in some cases, frequency of the LST already undertaken. 

The Guidelines will apply to UCITS management companies ("UCITS ManCos"), alternative investment fund managers (“AIFM”) and managers of money market funds (“MMFs”)¹ . As regards the scope, exchange-traded funds (ETFs) and leveraged closed-ended AIFs are included. 

These Guidelines are now in the process of being translated into the official EU languages and they will apply from 30 September 2020. 

UCITS ManCos and AIFMs will have to determine the impact of the Guidelines on their current liquidity and risk management process and to ensure that they comply with the new requirements. They will be entitled to adapt the changes to be made to the nature, scale and complexity of the fund(s) that they manage, i.e. the proportionality principle applies.