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The Irish central bank has called on asset managers to “critically” review their practices to avoid a repeat of an episode in the midst of the coronavirus crisis during which they seized dozens of funds.
The Central Bank of Ireland, the regulator of the country’s € 3 million fund sector, has instructed all asset managers with operations on the island to carry out a detailed review of their liquidity management processes. to improve investor guarantees.
“The vulnerabilities identified in certain sectors of the fund industry need to be addressed,” Derville Rowland, director general of financial conduct at the Central Bank of Ireland, said in a speech on Wednesday.
Serious problems affecting corporate bonds, property and European money market funds, which erupted last March, threatened a wider systemic crisis. It was only avoided after the introduction of massive emergency support measures by central banks.
Ireland is one of the largest investment centers in Europe and many of the world’s top asset managers choose to domicile funds in Dublin, allowing them to be sold across the EU.
The IWC’s actions are likely to be followed by other national European regulators as part of an EU-wide effort to address the liquidity problems facing various investment funds when the pandemic escalated in early 2020.
The problems of the European monetary sector of 1.4 million euros in March 2020 were triggered when companies made some cash in response to the announcement of closure measures, while investors did not they found themselves able to extract money from some corporate debt and real estate funds in the UK. .
“Parts of the fund sector played no role in shock absorption, but in the transmission and amplification of stress,” said Rowland, who spoke Wednesday at the Irish Funds association’s annual conference. .
The CBI has already issued 35 risk mitigation programs where specific liquidity issues were identified after questioning 273 managers.
A letter sent this week by the CBI called on Irish-based managers to consider how their liquidity risk management frameworks and fund structures should be adapted to take account of the increase in cash withdrawals. investors during last year’s market turmoil.
Most European investment funds, known as Ucits, offer daily liquidity, which allows investors to withdraw their money at any time they choose. But some funds make large allocations to assets that can be difficult to sell, such as property. The rush of investors out of a crisis sometimes forces a fund manager to block clients ’cash.
According to Fitch Ratings, more than 80 European investment funds managing assets worth more than $ 40 billion were forced to suspend in March 2020.
The IWC also called for the establishment of a new European macro-prudential framework for investment funds in order to improve guarantees for investors.
“The absence of this macroprudential framework for mutual funds remains, in our view, a key omission in the set of European regulatory tools,” Rowland said.
According to the IWC, new restrictions should be considered, including leverage limits and measures to address liquidity mismatches, to strengthen the resilience of the fund sector to future shocks.
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