Summary of CySEC's Circular C548
Memo #06-2023
CySEC Circular No: C548
Date: 13/02/2023
Subject: Guidance on Liquidity Risk Management (‘LRM’)
Purpose: To provide Regulated Entities with guidance aimed at assisting them to ensure compliance with their Liquidity Risk Management legal obligations.
In Summary:
CySEC has issued the Circular C548 on 10/02/2023 to provide Cyprus UCITS Management Companies and Self-Managed Cyprus UCITS (‘CUCITS MCs’), Cyprus Alternative Investment Fund Managers and Self-Managed Cyprus AIFs (‘CAIFMs’) and Sub-Threshold Cyprus Alternative Investment Fund Managers and Self-Managed Cyprus AIFs (‘sub- threshold CAIFMs’), with guidance aimed at assisting them to ensure compliance with their Liquidity Risk Management (‘LRM’) legal obligations.
This guidance is issued following the thematic reviews carried out by CySEC in the context of the 2020 Common Supervisory Action (‘CSA’) on UCITS liquidity risk management launched by the European Securities and Markets Authority (‘ESMA’) and the findings presented in ESMA’s public statement ‘ESMA presents the results of the 2020 Common Supervisory Action (CSA) on UCITS liquidity risk management.
Also, CySEC informs that this guidance is aimed at mitigating supervisory risks and concerns identified in the area of Liquidity Management and to further the protection of investors, maintaining market integrity and reducing systemic risk.
CySEC notes that although the 2020 CSA on LRM focused on CUCITS MCs and UCITS under their management, almost all of the areas reviewed relate to respective legal obligations of AIFMs. Therefore, the guidance in this Circular C548 is also applicable to AIFMs and AIFs under their management, except where explicitly stated otherwise.
CySEC explains the applicability of this Circular C548 and informs that the regulatory framework based on which this Circular C548 has been developed, is set out in the Annex of this Circular C548.
This Circular C548 includes:
Guidance to Management Companies:
i. Due diligence in the selection of investments
ii. Use of presumption of liquidity at pre-investment stage (applicable only for UCITS Funds)
iii. Ongoing monitoring of liquidity risk - risk management, ongoing alignment of redemption policies and liquidity profiles and ongoing assessment of the liquidity of the overall portfolio of the funds under management
iv. Data availability, reliability, sources, screening and processing
v. Governance and control mechanisms
a) Senior Management ("SM") and Board of Directors ("BoD") Responsibility - Reporting to SM and BoD
b) Liquidity Risk Management Decision Making and Escalation Processes
Regulated Entities should ensure that KIIDs/KIDs and/or prospectuses/ offering documents/periodic reports to investors are consistently updated and include accurate, clear and complete disclosures on liquidity risks and the use of special liquidity management tools and arrangements under normal and exceptional circumstances.
CySEC further notes that, Regulated Entities should consider the guidance provided in this Circular C548 as well as ESMA’s March 2021 Public Statement relevant to the Common Supervisory Action (CSA) on UCITS liquidity risk management, against the performance of their activities.
Furthermore, CySEC provides reference to important amendments relevant to the LRM in the upcoming AIFMD and UCITS review and reference to other material produced by international organizations that may guide the risk/liquidity risk management activities of “Management Companies.
ESMA’s March 2021 Public Statement relevant to the Common Supervisory Action (CSA) on UCITS liquidity risk management can be found on the following link:
Read the CySEC Circular C548
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