ESMA announces common supervisory action on valuation of UCITS and open-ended AIFs

Key Points to Note:

• CSA on fund valuation will be conducted by national competent authorities throughout 2022

• It will focus in particular on valuation of less liquid assets held by UCITS and open-ended AIFs

Background

As readers will be aware from our recent briefing providing a preview of expected legal and regulatory developments in 2022, ESMA noted in its work programme for 2022 published in September 2021 that it intended to conduct a common supervisory action in the area of fund valuation (CSA).

Announcement of CSA on valuation of UCITS and open-ended AIFs

In a press release published earlier today, ESMA has confirmed that it has now launched this CSA which will be conducted throughout 2022. It also notes as follows:

1. the CSA will be focused on valuation of UCITS and open-ended AIFs;

2. while it intends to assess compliance of UCITS management companies and AIFMs (Management Companies) with valuation-
   related provisions set down in the UCITS and AIFMD frameworks generally, the CSA will focus in particular on the valuation of less liquid assets; and

3. consequently, the CSA will focus on those management companies of UCITS and open-ended AIFs which invest in less liquid assets. ESMA notes that this includes unlisted equities, unrated bonds, corporate debt, real estate, high yield bonds, emerging markets, listed equities that are not actively traded, bank loans.

The Central Bank is likely to issue the CSA to in-scope Management Companies shortly. If it follows the format of other common supervisory actions conducted in 2020 and 2021, the first limb of the CSA is likely to be the issue of a qualitative and quantitative questionnaire to a group of Management Companies which the Central Bank has identified as investing in less liquid assets on behalf of funds under management. The responses to the questionnaires will then be analysed by the Central Bank before it selects a smaller cohort of those Management Companies to engage with further for a closer analysis of their valuation practices.

If you have any questions relating to the CSA, please get in touch with your usual Dillon Eustace contact.