The International Organization of Securities Commissions (IOSCO) has published two final reports which should be read together. The first sets out recommendations for liquidity risk management for collective investment schemes. This replaces its 2013 report and contains 17 recommendations as well as additional guidance for securities regulators.
The second report covers good practices and issues for open-ended fund liquidity and risk management and illustrates how various jurisdictions regulate liquidity risk practices. It also provides good practices for liquidity risk management throughout the entire life cycle of a fund and outlines scenarios in which an asset manager may use liquidity management tools to manage liquidity issues in certain funds.
MONEY MARKET FUNDS REGULATION: Commission letter on implementation
With regard to ESMA’s Money Market Fund (MMF) Regulation, the Commission has responded to a question raised in ESMA’s covering letter on the use, under the regulation, of the reverse distribution mechanism, often referred to as ‘share cancellation’ or ‘share destruction’, confirming ESMA’s view that this mechanism is not compatible with the MMF Regulation.
This could have a considerable impact on the ability of Euro-denominated money market funds to maintain a stable NAV. Many of such funds have used share cancellation methods to deal with negative interest rates and the Institutional Money Market Funds Association has suggested they will now find it “operationally impossible to offer funds with negative yield currencies that use a stable price”.
ESMA is now considering possible next steps with a view to promoting convergent application of the MMF Regulation across the EU.
Read the Commission’s letter »
PRIIPs: FCA statement on the KID
The Financial Conduct Authority (FCA) has published a statement relating to concerns raised about performance scenarios in the key information document (KID).
Under the Regulation for packaged retail and insurance-based investment products (PRIIPs) PRIIPs manufacturers have to prepare and publish a stand-alone, standardised document (the KID) for each of their PRIIPs. The KID contains information on risks, performance scenarios, costs and other pre-contractual information and must be accurate, fair, clear and not misleading. The PRIIPs regulatory technical standards (RTSs) set out how information in the KID should be calculated.
The FCA said it understood that some firms are concerned that, for a minority of PRIIPs, the performance scenario information required in the KID may appear too optimistic and so has the potential to mislead consumers. There may be a number of reasons for this including the strong past performance of certain markets, the way the calculations in the RTSs must be carried out, or calculation errors.
Where a PRIIP manufacturer is concerned that performance scenarios in one of its KIDs are overly optimistic, and risk misleading investors, the FCA agrees that it may provide additional explanations to put the calculation in context and explain its concerns to investors.
Firms with such concerns should consider how to address them, for example by providing additional explanation in their communications with clients.
Read the FCA's statement »
PRIIPs: FCA enforcement instrument
As part of Handbook Notice 51, the FCA has published the Enforcement (Packaged Retail and Insurance-based Investment Products Regulations 2017) Instrument 2018. This sets out how the FCA will exercise its powers under PRIIPs.
Read the instrument »
Fund distribution resources
Dechert maintains two services designed to assist managers with global fund distribution and registration.
World Compass - A global web-based service offering investment firms 24/7 access to detailed information on fund marketing, separate accounts and beneficial ownership reporting
