ESMA’s Common Supervisory Action on Valuation of UCITS and Open-Ended AIFs

The CSA will be conducted in 2022 using a common assessment framework developed by ESMA.  This will outline the scope, methodology, supervisory expectations and timeline for NCAs to carry out a simultaneous comprehensive supervisory assessment in their respective jurisdictions of the compliance of authorised managers of UCITS and open-ended AIFs (“Managers”) with the relevant valuation provisions in the UCITS and AIFMD frameworks.  It follows ESMA’s announcement in September 2021 that the selected topic for a 2022 CSA in the investment management area is funds’ assets valuation.

In particular, the CSA will focus on the valuation of less liquid assets including unlisted securities, unrated bonds, corporate debt, real estate, high yield bonds, emerging markets, listed equities that are not actively traded and bank loans.

A core objective is the consistent and effective supervision of valuation methodologies, policies and procedures of supervised entities to ensure that less liquid assets are valued fairly during normal and stressed market conditions, in line with applicable rules.

Assuming that the CSA follows the process of the previous common supervisory actions covering UCITS liquidity risk management and the supervision of costs and fees in UCITS in 2020 and 2021 (for further details, see our updates UCITS Liquidity Review: ESMA and NCAs and CBI Calls For UCITS Managers to Review Liquidity Risk Management Frameworks), the CSA will be carried out in two stages.  In the first stage, NCAs will request quantitative data identified in scope from Managers to get an overview of valuation issues.  In the second stage, it is likely that NCAs will perform an in-depth analysis of the valuation practices of a selected sample of these Managers.

For further information, please liaise with your usual Maples Group contact or any of the persons listed below.