21/04/20

EUROPE: Regulators scrutinise investment fund liquidity sparked by sell-off.

As published on cityam.com, Monday 20 April, 2020.

Asset managers across Europe are coming under increased scrutiny as regulators ask for new information about their ability to meet investor withdrawals.

The French and German financial regulators are asking for daily updates of investor redemptions as they seek to stave off a liquidity crunch sparked by the coronavirus-induced market sell-off.

It comes after investors fled funds in response to market volatility last month, redeeming a record £31.bn.

Germany’s BaFin is holding daily calls with managers of retail funds categorised as having the “most critical liquidity risk status” to discuss measures to mitigate the situation, according to the Financial Times.

The watchdog is also looking to speed up the introduction of liquidity management tools such as swing pricing and redemption gates.

Similarly the Autorite des Marches Financiers of France is requesting additional information on when funds breach investment restrictions.

The IMF have warned that despite a rebound in financial markets over the past two weeks, large portfolio losses could still lead to further outflows.

Regulators in Luxembourg and Ireland are also increasing their monitoring of funds. The Central Bank of Ireland wrote to the investment companies it oversees last month asking them to provide updates on their funds.

Early last month the Financial Conduct Authority (FCA) asked asset managers to provide a clear warning if a fund is in trouble.

The regulator asked depositaries to issue a warning if a fund is about to suspend trading and an explanation of the problems it faces.

Since March, the FCA has been receiving daily reporting from depositaries on funds where the net asset values have decreased by 10 per cent or more.