The European Securities and Markets Authority has published final guidance for stress testing alternative investment and Ucits funds, encompassing areas such as liquidity risk as it may affect financial stability.
Funds based in the EU will be subject to regular tests for their resilience to different types of risk, including liquidity risk, Esma stated.
The guidelines outline how asset managers must design the "scenarios, policies and frequency of liqidity stress tests for the funds they manage".
"The guidelines also recommend managers to notify National Competent Authorities (NCAs) of material risks and actions taken to address them. One guideline also applies to depositaries, requiring verification that the fund manager has in place documented procedures for its liquidity stress testing programme. The common requirements will allow convergence in the way NCAs supervise liquidity stress testing across the EU."
The guidelines will become applicable on 30 September 2020, with the requirements set out to be viewed as supplementary to those on liquidity stress testing already contained in the AIFM and Ucits Directives.
The European regulator earlier this summer announced that it was preparing stress test measures for money market funds in particular (https://www.esma.europa.eu/press-news/esma-news/esma-readies-stress-testing-requirements-money-market-funds )
Click here to read the full guideline report: