On 27 November 2023, the European Securities and Markets Authority (ESMA) published a speech by Verena Ross, Chair at the EFAMA Investment Management Forum in Brussels. The speech is entitled: The role of asset management – channelling capital into financial markets preserving financial stability and sustainability aims.

In her speech Ms Ross provides a stock take of regulatory initiatives to preserve financial stability in the non-bank financial sector and discusses sustainability.

Key points in the speech include:

  • Over the past years, ESMA has actively contributed to the discussions at the European and international level, leading to several concrete proposals notably in investment funds with a view to strengthening the overall resilience of the financial system. In that context, the Financial Stability Board (FSB) is expected to issue new recommendations on liquidity mismatch in open-ended funds and the International Organization of Securities Commissions should issue guidance on anti-dilution liquidity management tools – both by the end of the year.
  • Member State national competent authorities (NCAs) and ESMA conduct regular risk assessments in the investment fund management sector. ESMA published guidelines on the implementation of Article 25 of the Alternative Investment Fund Managers Directive to promote convergence in supervisory practices and discussion among supervisors regarding leverage. The guidelines include a set of leverage-related risk indicators that can be measured with supervisory data.
  • Since the emergence of the Covid-19 pandemic, ESMA has identified several issues related to the valuation of assets. To name a few, these include consistent application of valuation rules, insufficient control by management companies on the quality of external valuers and/or overreliance on external reports.
  • ESMA has conducted a common supervisory action (CSA) on valuation with NCAs with a specific focus on less liquid assets, such as private equity and real estate assets, whose nature can amplify the structural liquidity mismatches of certain types of investment funds. The CSA provided a valuable opportunity to exchange knowledge and experiences amongst NCAs on their supervisory approaches to addressing adherence with fair value principles, both under normal and stressed market conditions.
  • On the regulatory side, ESMA welcomes the European Commission’s consultation on the assessment of the Sustainable Finance Disclosure Regulation. It provides a good opportunity to take a step back and look holistically at what improvements can be made.
  • ESMA has decided to upgrade ESG disclosures as one of its two EU-wide strategic supervisory priorities since the beginning of this year. By doing so, ESMA is urging NCAs to implement this priority into their national supervisory work programme this year and in the years to come.
  • ESMA are also revising existing guidelines to reflect ESG considerations, ensuring that investors receive accurate information and advice about products that properly reflect the product’s sustainability features. These updated guidelines will help distributors consider sustainability preferences properly, giving retail investors the trust and confidence they need.
  • ESMA is closely monitoring the progress of the ESG rating file and are hopeful that an agreement can be reached before the end of the European Parliament’s term.