Asset managers have adequate liquidity stress tests policies in place

Market-wide shocks in recent years and current economic and geopolitical risks highlight the importance of being well prepared for unexpected events. Regularly conducting liquidity stress tests (LSTs) helps with this and reduces risk.

Asset managers conduct LSTs largely in line with ESMA guidelines

In the second half of 2023, the AFM and DNB requested information from six large managers of investment funds and UCITS. They were asked about their policies for liquidity stress tests, taking the guidelines of the European supervisor ESMA as a starting point. The general picture that emerges is that the managers examined have adequate LST policies in place and implement LSTs largely in line with the ESMA guidelines.

Some managers can improve in certain areas

For example, not all managers use both historical and hypothetical scenarios for their LSTs. If managers only use historical scenarios, they may underestimate future, more severe stress situations. In addition, not all managers take into account risk factors such as the type of investor and the investor concentration when applying scenarios on the liabilities side.

The findings provide an overview of the sector and suggest potential areas of improvement

The AFM and DNB are now sharing the findings in a report that provides an overview of how various components of the LST policy have been implemented by asset managers in accordance with the ESMA guidelines. The AFM and DNB expect all managers to apply the ESMA guidelines and to implement improvements to their LST policies where necessary.

 

More information

Report liquidity stress tests (pdf, 218 kB)