FCA tells asset managers to review liquidity management in funds
The FCA said that managing liquidity effectively was “vital” for asset managers.
The FCA said that managing liquidity effectively was «vital» for asset managers, allowing investors to withdraw funds «in line with their expectations and at an accurate price that reflects its value».
While some firms demonstrated «very high standards» in the regulator's review, there was a «wide disparity» in the quality of compliance with regulatory standards and depth of liquidity risk management expertise, it said.
«A minority of firms in the review had inadequate frameworks to manage liquidity risk,» it added.
LTAF retail extension receives mixed reaction as platforms weigh challenges
Property funds were not subject to the FCA's review, despite repeated instances over the years of fund managers have imposed redemption limits on some property funds.
While the building blocks and tools for effective liquidity management were usually in place at firms, the FCA found in its review, some «lacked coherence when viewed as a full process and were not always embedded into daily activities».
Many also attached «insufficient weight» to liquidity risk management in their governance oversight arrangements, as well as insufficient challenge and escalation, it said.
Furthermore, some approaches to liquidity stress testing were deemed «insufficient» by the FCA, using assumptions «that were not appropriately conservative».
«Firms typically had governance and organisational arrangements in place to meet large one-off redemptions but did not have sufficient arrangements in place to oversee cumulative or market-wide redemptions that could have a significant impact on a fund,» it added.
It also found cases of «wide variations in the application of
Read more on investmentweek.co.uk
