Tuesday May 12 2020
News Source: Fund Regulation
Focus: Liquidity Risk Management
Due to the high levels of market volatility and the disruption caused by COVID-19, ASIC has published a letter on liquidity management to mangers:
- Reminding them of their legal obligations and duties to members, especially in relation to managing scheme liquidity;
- Asking them to assist ASIC in monitoring the current situation, by notifying ASIC immediately if any registered scheme becomes non-liquid; and
- Setting out he relief that ASIC may be able to provide to assist members if a scheme becomes non-liquid.
ASIC expects that managers:
- are actively monitoring the levels of redemptions and applications for interests in each of the Schemes
- are actively reviewing the terms on which redemptions are made available for each Scheme and whether this remains consistent with the liquidity of the underlying assets of the Scheme. Where there is a material mismatch between the redemption terms and the underlying assets, ASIC expect managers to take active steps to address this (e.g. to revise the terms on which redemptions are being offered, such as moving from daily redemptions to less frequent redemptions).
- are actively assessing whether Schemes remain liquid or become non-liquid. Should a Scheme become non-liquid managers would need to determine whether redemptions should be suspended to protect the interest of all members, having regard to the duties they owe to members, the terms of the Scheme constitution, and your obligations under the provisions that apply to redemptions from non-liquid Schemes in Part 5C.6 of the Corporations Act. ASIC also expects mangers to consider whether suspending all member related cashflows (including applications, distributions and distribution re-investments) would be necessary in order to act in the best interests of all members.
- are monitoring the valuation of Scheme property and its flow through to unit prices upon which member transactions are processed. This also extends to consideration of appropriate buy/sell spreads.
- are carrying out their obligations in line with our expectations under Regulatory Guide 259 Risk management systems of responsible entities, relating to liquidity, risk management systems and stress testing.
- are meeting their disclosure obligations and are communicating with Scheme members in a timely manner. When communicating with Scheme members ASIC expect that managers will treat members equally and fairly (e.g. not affording preference to one member over another when providing information).
Notification to ASIC of suspension or illiquidity
Should managers form the view that any Scheme is non-liquid or decide to suspend redemptions in any Scheme, ASIC have asked that they are notified immediately.
Should a RE find itself in the position of declaring a Scheme non-liquid for an extended period of time, the RE may wish to consider applying to ASIC for hardship relief via the usual process (email firstname.lastname@example.org).
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