Investment funds' liquidity risk management tools: the AMF amends its General Regulation and updates its policy

The context

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).

Timetable

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).

Reference texts

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.

List of amended policy documents