Out-Law News

Irish fund management companies must respond to Central Bank liquidity management survey

The Central Bank of Ireland recently launched a survey of the availability and usage of liquidity management tools (LMTs) by Irish authorised investment funds. 

 The Central Bank would like to gain a deeper understanding of the use of LMTs and is gathering data from Fund Management Companies (FMCs) in relation the LMTs employed by Irish authorised funds. Each FMC are required to complete a quantitative questionnaire as part of the extensive review. 

In response to the Central Bank’s LMT survey, FMCs are required to provide extensive information on the liquidity of their Irish funds’ portfolios and the liquidity terms offered to investors, an expert has said. 

“FMCs must also inform the Central Bank of their use of swing pricing and dual pricing mechanisms and provide information on policies related to the application of anti-dilution levels,” said Conor Durkin, investment funds expert at Pinsent Masons.

Swing pricing is a mechanism used to protect existing investors from costs incurred by the trading of a fund resulting from subscriptions or redemption activity of other investors. Buying or selling of investments can lead to significant trading costs, with funds adjusting the net asset value, known as the ‘swing factor’, to reflect the actual cost of trading. Dual pricing refers to the practice of setting different prices for the same product in different markets. This may be done to reflect the costs of doing business in different locations, or in response to local competition.

A draft questionnaire was circulated by Central Bank ahead of the final version illustrating the content which will be requested as part of the Bank’s survey. FMCs will be notified by the Central Bank once the final questionnaire is available for completion, accessible via the Central Bank’s portal. Guidance notes will be provided which the Central Bank has urged firms to review ahead of completing the questionnaire. 

It is the responsibility of each individual FMC to put processes in place to ensure the questionnaire is properly completed and returned. The questionnaire must be submitted in the required format on the portal. The timeframe for completion of the questionnaire is 12 July, and the Central Bank not expected to grant deadline extension requests.

“The outcome of the Central Bank’s survey on the usage LMTs will not be finalised until later this year, but I think it is likely that the Central Bank will require FMCs to enhance their risk and governance frameworks in relation to dual pricing, swing pricing and anti-dilution levies,” said Durkin. 

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