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AQMetrics Regulatory Round-Up: August 2020


Welcome to AQMetrics regulatory round-up, a monthly initiative that keeps readers abreast of all the latest regulatory news and events.


Firms and regulators may be gearing up for ESMA’s Liquidity Stress Test regulations later in September, but August was still a relatively busy month for regulators. ESMA, for instance, outlined its priorities for the upcoming AIFMD review, with a notable emphasis on the harmonisation of AIF and UCITS regimes and liquidity management tools. The European regulator will also update its Money Market Fund Guidelines for stress test scenarios.Elsewhere, the FCA published a consultation paper outlining potential new rules to improve Opened Ended Property Fund structures.Relatedly, the UK regulator also launched a survey for looking at liquidity mismatch in open-ended funds, after a BoE financial stability report highlighted fund liquidity mismatches as a potential concern. The moves come as several high-profile UK property funds remain suspended in the wake of the Covid-19 pandemic.The SEC, meanwhile, is seeking to enhance the overall retail investor experience, with modernised fund shareholder reports and disclosures, and Switzerland has proposed creating a new, and more flexible, fund category.


ESMA recommends top priorities for AIFM review

On 19 August, the European financial regulator released alengthy letterto the European Commission that highlighted key areas to consider during the upcoming review of the AIFMD regime. While the AIFMD regime has worked relatively well since its inception since 2011, ESMA, along with the national competent authorities, have outlined a number of areas for improvement.The letter contains 19 recommendations in total, and none will come as a major surprise. They include:

  • Harmonising the AIFMD and UCITS regimes
  • Liquidity management tools
  • Leverage for AIF funds
  • Delegation and substance
  • The AIFMD reporting regime and data use.

AQMetrics will be keeping a close eye on how things unfold in the coming months.


ESMA updates money market fund liquidity guidelines

On 29 August, ESMAconfirmedthat the Guidelines on stress test scenarios under the MMFR regime would be updated to reflect recent developments, including the unprecedented bout of volatility in March as a result of Covid-19.Money Market Funds have attracted trouble during bouts of extreme volatility, including in 2008 and 2020, with central banks and regulators often having to come to the rescue.


CBI publishes money market fund guidance

On 30 August, the CBI published aGuidance Noteto assist money market fund managers with their reporting requirements under the MMFR. The new guidance provides information and direction on the completion of a number of reports by MMF managers, including fund returns, ad-hoc stress test reporting, and daily reporting for MMFs.


FCA consults on new Open-Ended Property Fund rules

On 3 August, the FCApublished a consultationoutlining several proposals aimed at reducing the potential for harm to investors as a result of the liquidity mismatches in open-ended property funds. The new rules would require investors to notify fund managers 90-180 days in advance if they wish to redeem their investment.The FCA could publish a policy statement with final rules as early as 2021, although asset managers and financial advisers have pushed against the move, claiming that property funds will become less accessible to investors, particularly if advisors cannot easily invest in them on behalf of multiple client investors.


FCA launches liquidity survey

On 26 August, the FCA launched asurveyfor the joint BoE and FCA review of liquidity mismatches in open-ended funds. The survey follows the BoE’s financial stability report, which found that fund liquidity mismatches and redemption risks could become systematic.The survey is voluntary, and the data is set to inform much of the joint review. Asset managers are being asked to respond to the questions by 30 September.


SEC seeks to revamp fund shareholder reports and disclosures

On 5 August, the SEC proposedsignificant changesto mutual fund and exchange-traded fund disclosure rules, in a bid to make investing easier for retail investors. In particular, the SEC wants to establish a new framework that highlights the most important information for retail investors to assess and monitor. This includes:1. Making the shareholder reports to open-ended investors more concise and visually engaging;
2. No more requirements around annual prospectus updates, with the shareholder report the central service of fund disclosure information;
3. Eliminating the reliance on electronic delivery. Under the new changes, the revamped shareholder reports would have to be mailed.


Switzerland moves forward with new fund type

On 19 August, the Swiss Federal Counciladopted revisionsto the Collective Investment Schemes Act (CISA), creating a new fund category, the limited qualified investor fund (L-QIF). The new fund type offers qualified investors an alternative to similar foreign products.The new fund type won’t be subject to FINMA scrutiny, and can therefore be launched more quickly and cost effectively. Parliament will debate the proposal, with the new fund type likely to go live in 2022.


Looking forward

With just a few days left before ESMA’s Liquidity Stress Testing Guidelines go live, liquidity is likely to dominate the next few weeks, and firms are putting the finishing touches on their tests. If you’d like to learn more about how AQMetrics can help, please contact [email protected].