Investment funds' liquidity risk management tools: the AMF amends its General Regulation and updates its policy
As announced in early March, the Autorité des marchés financiers (AMF) continues its efforts to update the French framework for liquidity risk management. The AMF amends its General Regulation and its policy to clarify the framework applicable to three tools in particular: subscription and/or redemption notice periods, redemptions in kind and the full or partial closing of subscriptions.
In recent years, international bodies have strengthened the overall framework for liquidity risk management tools, while giving the national authorities broad discretion to select the tools that are made available to operators. Against this backdrop, the AMF is updating the French framework for investment funds’ liquidity risk management tools. In 2017 the AMF authorised the use of redemption gates and also published an instructional guide on stress tests. In 2018, it is clarifying the framework for certain tools.
Clarification of the framework applicable to three tools
The AMF amends its General Regulation and its policy to clarify the framework applicable to three liquidity risk management tools. The tools concerned by these modifications are as follows:
- the establishment of subscription and/or redemption notice periods, which give fund managers more flexibility to execute orders on certain markets that might be less liquid (for example, the small-cap or high-yield bond markets) and therefore prevent portfolio distortion, in the interest of the fund’s unit-holders or shareholders;
redemptions in kind, i.e. directly in portfolio assets, when certain professional investors request them and certain conditions are met; and
the full or partial closing of subscriptions (“soft” or “hard” close), for example when a fund becomes too big for its reference market.
Scope of the clarification
The funds in the scope of this update to the regulatory framework for liquidity risk management are as follows: UCITS, retail investment funds (RIF), funds of alternative funds (FAF), professional investment funds (PIF) and employee investment undertakings (EIU).
The AMF draws French asset management companies’ attention to the fact that they have until 30 June 2019 to comply with the new rules, especially when these involve updating regulatory documents (prospectus, fund rules and/or articles of incorporation).
List of amended Articles of the General Regulation
The decree of 13 April 2018 approving the amendments to the AMF General Regulation was published in the Official Journal of 21 April 2018.
|UCITS||RIF, FAF and PIF||EIU|
|Subscription notice periods||411-20-2||422-21-2 (RIF), 422-250 (FAF) and 423-1 (PIF)||-|
|Redemption in kind||411-20, 411-23 and 411-40||422-21, 422-25 (RIF, FAF, PIF) and 422-39 (RIF, FAF, PIF)||422-21, 422-25 and 422-39|
|Closing of subscriptions||411-20||422-21 (RIF), 422-250 (FAF) and 423-1 (PIF)|
Applicable to EIU by reference to Article 424-1
List of amended policy documents
|UCITS||RIF, FAF and PIF||EIU|
|Standard template for the prospectus|
|Standard fund rules|
Annexes XIII and XIIIb
|Standard articles of incorporation|
On the same topic
Head of publications: The Executive Director of AMF Communication Directorate. Contact: Communication Directorate – Autorité des marches financiers 17 place de la Bourse – 75082 Paris cedex 02