IRELAND: CBI Publish Letter on Common Supervisory Action on UCITS Liquidity Risk Management

Wednesday May 19 2021

The Central Bank of Ireland (CBI) has published a letter following the Central Bank of Ireland’s review in early 2020 on UCITS liquidity risk management (LRM) as part of a Common Supervisory Action (CSA) coordinated by the European Securities and Markets Authority (ESMA).

The purpose of the CSA was to assess UCITS Fund Management Companies’ compliance with their LRM obligations by simultaneously conducting supervisory activities throughout the EU/EEA.

ESMA’s public statement details a number of adverse supervisory findings and highlights the importance of market participants critically reviewing their LRM frameworks to ensure that none of the adverse supervisory findings are found in their LRM frameworks. The public statement also states that market participants should ensure compliance with all relevant UCITS regulatory requirements and associated EU and national guidance. Further, it notes that follow up actions will be undertaken by NCAs to ensure that regulatory breaches as well as other shortcomings or weaknesses identified are remedied. In the case of the Central Bank, supervisory engagement has commenced with UCITS managers where specific concerns were identified. This engagement has resulted in the Central Bank issuing 35 Risk Mitigation Programmes to date. In addition, findings from the CSA will inform policy development at both a national and European level.

In addition to its engagement with individual firms where findings were noted, the Central Bank has issued a letter to all Irish authorised UCITS managers to require them to carry out a review of their activities in light of the findings of the CSA. The CBI has also elaborated below on some of the findings from the CSA where they wish to highlight areas for attention by UCITS managers authorised in Ireland.

Action Required

In light of the seriousness of the findings of the CSA in the context of the importance of effective LRM frameworks, all Irish authorised UCITS managers are required to conduct a specific review of their practices, documentation, systems and controls by reference to the findings in the ESMA public statement and CBI letter.

The review must be documented and must include details of actions taken to address any of the findings in the ESMA public statement and letter. This review should be completed and an action plan discussed and approved by the board of each UCITS manager by end of Q4 2021.

The review should have regard to the findings set out in the ESMA public statement and the following specific items relating to those findings:

• Instances of LRM frameworks that were not clearly defined, adaptable and/or independent
• A lack of formal documented pre-investment forecasting frameworks
• A lack of formal liquidity escalation policies
• Cases where no pre-investment forecasting performed
• Over-reliance on the presumption of ongoing liquidity
• Oversight of delegates below expectations
• Shortcomings in the role of the designated person for fund risk management
• Cases of no liquidity reporting to the board of the UCITS manager
• Shortcomings in internal control framework

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