ESMA LIQUIDITY STRESS TESTING

In recent years the risks of potential liquidity mismatches on investment fund level, between the liquidity of the funds’ assets and the liquidity offered to its investors have amplified. In this regard, the European Securities and Markets Authority (ESMA) published its final report in relation to liquidity stress testing (LST) of investment funds applicable to both UCITS and AIFs.

Investment Managers should assess the time and cost to liquidate, whilst simultaneously maintaining the standard and consistency of the Fund’s total risk profile. The main aim will be to stress test both the asset and liability side of the portfolio of the Funds being managed, to conduct both historical and hypothetical scenario liquidity stress testing, whilst simultaneously factoring in the investor type, concentration and location. LST frequency should be determined based on the funds characteristics however, a quarterly frequency is recommended.

How RMC Wise Ltd. can help?

Management Companies are required to assess their current liquidity risk management techniques and reporting against the 16 ESMA liquidity guidelines before the 30th September 2020 deadline.

RMC Wise Ltd., using a first-class financial Data Analytics, can assist to offer an LST solution which is tailor made to each Asset Manager and complies with international requirements as per the ESMA Liquidity Stress Testing Guidelines.

RMC can assist in:

  • Perform a gap-analysis of your current liquidity stress testing policy against ESMA guidelines
  • Design your liquidity risk models and stress tests
  • Draft or update LST policy
  • Provide liquidity stress testing trainings
  • Provide regular liquidity stress testing reports

What does the LST solution cover?

  • All Asset Classes
  • Historical and Hypothetical Scenarios
  • Fully customizable Stress testing metrics
  • Monitoring of investor dealing
  • Automated reports scheduled at flexible frequencies