The European Fund and Asset Management Association (Efama) has criticised the FSB and IOSCO’s proposals for “unnecessarily complicating” liquidity risk management, potentially raising costs for investors with minimal benefits.
While the protection of long-term investors from material dilution is a legitimate objective, Efama expressed doubts about the Financial Stability Board (FSB) proposals on structural vulnerabilities in the OEF sector and the International Organisation of Securities Commissions (IOSCO) proposals on anti-dilution liquidity management tools (LMTs) increasing the resilience of the OEF sector.
Marin Capelle from Efama pinpointed “unproven assumptions” in OEF regulations, such as potential ‘excess sales’ during stressful times. He emphasised the need for consultation and assessment before enforcing new mandates.
Efama also criticised the FSB’s methodology, calling it “flawed” with an undue focus on OEFs. It termed the FSB’s liquidity bucketing proposal as “inaccurate” and highlighted concerns over IOSCO’s suggestion for every OEF to adopt an anti-dilution tool.
Furthermore, Efama challenged the push for asset managers to account for implicit transaction costs, stating that the estimates can be complex and may not be relevant for all OEFs.
Efama recommended promoting a diverse set of LMTs for both regular and stressed markets. It also acknowledged the role of ADTs for funds investing in less liquid assets, stating they could prevent sophisticated investors from unfairly exiting before others.
The European Securities and Markets Authority will soon establish LMT rules, using the IOSCO guidelines as a foundation.
In Europe, the European Securities and Markets Authority will establish rules for LMTs, including guidance on their use and disclosure to investors, with the IOSCO guidelines serving as a reference for their development.
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