European Securities and Markets Authority
Macro-prudential supervision of investment funds - ESMA publishes speech - 21 March 2023
The European Securities and Markets Authority (ESMA) has published a speech by its Chair, Verena Ross, on the macro-prudential supervision of investment funds. The speech covers market developments in the investment management sector and ESMA's views on current vulnerabilities.
Ms Ross notes that risks are likely to come from sudden and unexpected shocks, coming on top of existing vulnerabilities, with interest rate risks being specifically highlighted. Therefore, it is important to identify, monitor and address vulnerabilities in the investment management sector, and identify the possible channels of contagion to the rest of the financial system. Investment managers are told to prepare for "further and prolonged adverse events".
Issues with liquidity risk management appears to be ongoing. ESMA expects managers to monitor the alignment of their funds' investment strategy, their liquidity profile and their redemption policy. Managers should also put in place accurate assessment and strong controls around the management of liquidity risk. Ms Ross notes that leverage is another risk that ESMA is actively monitoring in the fund sector.
ESMA Speech: The macro-prudential supervision of investment funds