The Central Bank of Ireland ("CBI") issued a letter to all fund management companies on 7 August 2019 ("Letter") with a timely reminder of their ongoing obligations regarding liquidity management and compliance with legislative and regulatory obligations for UCITS and AIFs. This is in the context of the CBI's continuing engagement with industry on Brexit preparedness, and it stated it will have regard to the Letter as part of its future supervisory engagements.
The CBI reiterated that responsibility for liquidity risk management (including all legislative and regulatory obligations) of each fund under management rests with the board and the relevant designated persons (notwithstanding delegation of functions relating to same), and in particular emphasised:
- Liquidity risk management framework: The framework should be appropriately calibrated for each fund to take into account dealing frequency, investment strategy, portfolio composition and investor profile, on an ongoing basis (which may involve daily or intra-day monitoring).
- Liquidity stress testing: This is a key element of this framework and should take into account that individual asset liquidity and investor demands can change quickly and without notice. The board and designated persons should, on an ongoing basis, assess the liquidity position of each fund under management to ensure that the liquidity of the investment portfolio remains in line with the respective fund's redemption policy.
- Liquidity management tools: The deployment of tools such as duties and charges, gates and suspensions should be done in a transparent and proportionate manner, taking into account the best interest of investors.
- Fund documentation: This should be clear, accurate and in line with legislative and regulatory requirements.
The CBI also confirmed that its increased monitoring of investment fund liquidity and redemption activity, which commenced in January 2019, will continue through data collection, analysis of factors driving redemptions and seeking insight on management of such redemptions.