Global Trustee and Fiduciary Services Bite-Sized Issue 10 2023

Global Trustee and Fiduciary Services Bite-Sized | Issue 10 | 2023 4 QUICK LINKS CBDC DIVERSITY & INCLUSION FINTECH FUND LIQUIDITY OPERATIONAL RESILIENCE SUSTAINABLEFINANCE/ESG ASIA EUROPE LUXEMBOURG NORTH AMERICA UNITED KINGDOM FUND LIQUIDITY Pay Ongoing Attention to Sufficient LMTs and Correct AIFMD Reporting On 22 September 2023 the Dutch Authority for the Financial Markets (AFM) called on Dutch fund managers to ensure they have sufficient and appropriate liquidity instruments for investors of every kind. The AFM also stressed the importance of correctly reporting to the AFMwhen adapting liquidity management tools (LMTs) by alternative investment funds (AIFs). This call is set out in a sector letter addressed to Dutch fund managers by the Dutch Central Bank (DNB) and the AFM. It follows an investigation carried out by the AFM in 2022 into the number and composition of LMTs per unit fund among all Dutch fund managers. Findings Fund managers have a responsibility to manage liquidity risks within funds. Results of the survey show that most funds have three or more LMTs at their disposal, which may assist them if and when facing market stress. However, there are some findings from the survey results that require attention from fund managers. First, certain funds have a limited number of LMTs at their disposal and in some cases do not have the possibility to suspend redemptions. Second, the AFM found discrepancies between the survey and AIFMD reporting. Third, some responses in the survey appear the result of an erroneous interpretation of the term activated LMT. Fourth, notification periods for certain funds – especially for less liquid funds – is rather short. Earlier investigation into LMTs An earlier investigation conducted by the AFM on behalf of ESMA in 2020 found that not all unit funds had sufficient LMTs available. The AFM asked fund managers to examine whether the available LMTs were sufficient and fully matched to the fund’s characteristics. Reiterated recommendations In the sector letter the AFM and DNB reiterate their earlier recommendations. More specifically, the research findings call for fund managers to take the following actions: 1. Regularly review their liquidity management practices and, where necessary, provide appropriate LMTs by amending the prospectus. 2. Changes to the prospectus should be notified to the AFMand investors. The sector letter includes guidelines on how fundmanagers should inform the AFM regarding the availability and use of LMTs. 3. The AFM expects fund managers of AIFs to include the active LMTs in their AIFMD reporting and correct any discrepancies. Link to Sector Letter here ESRBPublishesPolicyOptions toAddressRisks inCorporateDebt andReal Estate Investment Funds On 4 September 2023 the European Systemic Risk Board (ESRB) published an issues note describing how the EU regulatory framework for investment funds, which is currently being revised, could enhance the prevention and mitigation of systemic risks. The issues note focuses on investment funds with large exposures to corporate debt and real estate. This reflects the priority areas for enhanced scrutiny from a financial stability perspective that the ESRB identified during the COVID-19 pandemic. However, the policy options presented in this note might also be applicable to other fund types with vulnerabilities similar to those present in corporate debt funds and real estate funds. In the issues note the ESRB welcomes the provisional agreement reached between the European Parliament and the Council of the EU on the review of the regulatory framework for investment funds. The agreement provides a basis to apply broader systemic risk considerations to investment fund regulation. In line with the ESRB’s previous proposals, it says that several new provisions will enhance the regulatory and supervisory framework for investment funds from a financial stability perspective. In particular, the ESRB welcomes that the provisional agreement foresees an increased availability and consistent use of liquidity management tools (LMTs) for fund managers.