On 15 April 2025, the European Securities and Markets Authority (ESMA) published draft regulatory technical standards (RTS) and a final report on its guidelines on liquidity management tools (LMTs).

Background

The revised Alternative Investment Fund Managers (AIFMs) Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) Directive require ESMA to develop:

  • Draft RTS to determine the characteristics of LMTs available to AIFMs managing open-ended AIFs and to UCITS.
  • Guidelines on the selection and calibration of LMTs by UCITS and AIFMs of open-ended AIFs, for liquidity risk management and for mitigating financial stability risks.

ESMA published a consultation paper on its proposed draft RTS and guidelines in July 2024.

Final draft RTS and guidelines

The final draft RTS and guidelines are intended to better equip EU fund managers to manage the liquidity of funds, particularly in the event of market stress. The draft RTS also aim to provide clarity on the functioning of LMTs, such as the use of side pockets for which rules currently vary significantly across the EU. ESMA flags that, through their role in mitigating financial stability risks, these rules are an important contribution to the ongoing debate on Non-Bank Financial Intermediation. 

Next steps

The draft RTS have been submitted to the European Commission for adoption. The Commission must decide whether to adopt the RTS within 3 months (although that period may be extended by 1 month).

ESMA will translate the guidelines once the draft RTS have been adopted by the Commission. If the Commission amends the draft RTS in a way that would impact the guidelines, ESMA will adjust the guidelines accordingly. Once the translations have been published on ESMA’s website, national competent authorities will have 2 months to notify ESMA whether they comply or intend to comply with the guidelines.

The guidelines will start to apply on the date the RTS enter into force. Funds established before the RTS enter into force will have 12 months to comply with the guidelines.