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ICMA AMIC publishes joint paper with EFAMA on investment fund liquidity stress tests
8 January 2019 The Asset Management and Investors Council (AMIC) and the European Fund and Asset Management Association (EFAMA) have published a joint report on Liquidity Stress Testing (LST) in investment funds. The report highlights the role of stress tests as an important risk management tool which allows the fund manager to assess the impact of different market stresses at the portfolio level. Moreover, it outlines the long-standing standard practices in the fund industry and the existing comprehensive requirements foreseen by European and national laws. The report also finds that existing rules governing stress testing, notably the UCITS Directive and AIFMD, are already at an advanced level, and provide robust and appropriate liquidity risk management processes.

Based on the analysis, and in view of ESMA’s ongoing work on Guidance for national regulators in respect to LST for investment funds, AMIC and EFAMA have pinpointed three key findings:
  1. A principles-based approach on the Liquidity Stress Testing governance and oversight is the optimal way forward;
  2. Proportionality is key for setting the right framework for LST, allowing the heterogeneous fund sector to tailor stress tests to the profile of the fund, their respective investors and the invested assets; and
  3. Given the existing robust EU regulatory framework, regional and national authorities should now focus on minimising operational impediments and facilitating asset managers’ discharge of their liquidity risk management duties, by ensuring that they can avail themselves of a broad range of liquidity management tools.
AMIC and EFAMA look forward to contributing further to this debate and assisting global regulators in their discussions.

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