ESMA Guidelines mandate the selection of at least two appropriate Liquidity Management Tools (LMTs) per investment fund, and aim to enhance fund resilience, ensure appropriate LMT calibration aligned to investment strategy and redemption policy, and promote investor protection by mitigating liquidity mismatches. New provisions under Directive (EU) 2024/927 also allow suspension of subscriptions/redemption and activation of side pockets. These Guidelines apply from 16 April 2026 to new UCITS and Open-Ended AIFs and from 16 April 2027 to existing UCITS and Open-Ended AIFs.
What Fund Management Companies or Internally Managed Funds need to do in a nutshell:
- Review and enhance liquidity risk management frameworks to integrate appropriate LMTs.
- Select at least two LMTs per inv. fund, assessed for suitability against investment strategy, liquidity profile and redemption policy.
- Align LMT selection, calibration and activation with inv. fund-specific characteristics.
- Establish governance arrangements and internal procedures for LMT use, including decision-making and escalation mechanisms.
- Ensure fair, transparent and consistent application of LMTs in the interests of all investors.
- Update offering documentation (Investor Prospectus) and investor disclosure to reflect the selected LMT.
MNK RISK CONSULTING can assist AIFs and other Undertakings for Collective Investment to implement the above and ensure compliance with these new ESMA guidelines.