Asset valuation: EU managers under scrutiny

24 January 2022

ESMA has announced that it is launching its third common supervisory action (CSA) on the EU asset management sector, this time focusing on the valuation of UCITS and open-ended AIFs.

As part of the CSA, ESMA will work with national regulators across the EU to assess whether authorised managers of UCITS and open-ended AIFs are complying with the applicable requirements for valuing assets in such funds. In particular, ESMA states that it will focus on the valuation of assets that are less liquid (for example, unlisted equities, high yield bonds and real estate). Investments in such assets continue to be under the spotlight, following the high-profile suspension of the LF Woodford Equity Income Fund in 2019.

The national regulators will conduct the CSA during 2022 and its main objective will be to achieve “consistent and effective supervision of valuation methodologies, policies and procedures of supervised entities, to ensure that less liquid assets are valued fairly both during normal and stressed market conditions, in line with applicable rules”.

This means that EU managers of UCITS and open-ended AIFs (for example, Irish UCITS managers or Lux AIFMs) should expect their national regulators to start issuing requests for information on this topic soon. It remains to be seen whether the FCA will decide to mirror ESMA’s approach and scrutinise UK managers of UCITS and open-ended AIFs in a similar way, but assessing valuation risks is clearly a priority for all asset managers in the current economic climate.

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