On 21 May 2024, the European Securities and Markets Authority (ESMA) published the keynote address that its Chair, Verena Ross, gave at the Macroprudential policy for investment funds conference.

Key points in the keynote address include:

  • When comparing to the financial landscape 15 years ago, the non-bank financial sector is larger and more diverse. The size of non-bank financial intermediation (NBFI) in the EU has more than doubled since then, from 18 trillion euros of assets around the time of the global financial crisis (GFC) to 42 trillion. The asset management sector has seen rapid growth: as of today, Euro area investment funds alone manage 19 trillion euros, nearly tripling in size since the GFC.
  • In the EU, the revised fund regulations are introducing long-awaited provisions on liquidity management tools, as well as meeting a perennial request to introduce a UCITS reporting regime.
  • European supervisors have the possibility to impose restrictions to alternative investment funds making excessive use of leverage. But some risks are not caused by leverage, and therefore are not in the scope of this tool. Therefore, Article 25 of the Alternative Investment Fund Managers Directive (AIFMD) cannot be used to address risks posed by such funds. An issue for discussion could be the scope of macroprudential tools, not only in terms of risk covered, but also their application to all type of funds, potentially even beyond AIFMD.
  • Staying on top of market developments and risks is essential for macroprudential policy. It is worthwhile to consider whether ESMA’s risk analytical work and stress testing routines need an additional boost. This includes using data to identify and measure interconnectedness between NBFI and the banking sector.