Ireland is calling for a review of the fund’s liquidity after the March 2020 crisis

The Irish central bank has asked asset managers to “critically” review their practices to seize dozens of funds to prevent the recurrence of a peak episode of the coronavirus crisis.

The Central Bank of Ireland, the regulator of the country’s € 3 million fund sector, has ordered all asset managers with operations on the island to carry out a thorough analysis of their liquidity management processes to improve investor guarantees.

“The vulnerabilities identified in certain sectors of the fund industry need to be addressed,” Derville Rowland, chief financial officer at the Central Bank of Ireland, said in a statement on Wednesday.

The serious problems affecting European corporate bond, property and money market funds that erupted last March threatened to escalate into a broader systemic crisis. It was avoided only by the introduction of massive emergency aid measures by central banks.

Ireland is one of the most important investment hotspots in Europe, with many of the world’s largest asset managers choosing to fund their Dublin-based funds, allowing them to sell across the EU.

The actions of the CBI may be followed by other European national regulators in an effort to address the liquidity problems plaguing many European Union investment funds as the pandemic escalated in early 2020.

In March 2020 European market money of 1.4 billion euros in March 2020 when companies paused to raise money in response to the announcement of foreclosure measures, investors saw that they were not even able to withdraw money from some corporate debt funds and UK property funds. .

“Parts of the fund sector were not tasked with absorbing shocks, but with transmitting and exacerbating stress,” Rowland said at an annual conference of the Irish Funds association.

The CBI has already provided 35 risk mitigation programs, where specific liquidity issues were identified after a survey of 273 executives.

The letter sent by the CBI this week called on Irish residential managers to look at how liquidity risk management frameworks and fund structures should be adjusted to take into account the increase in investor retirements in last year’s market turmoil.

Most European investment funds, known as Ucits, provide daily liquidity, which allows investors to withdraw money whenever they want. But some funds make large allocations for assets that may be difficult to sell, such as property. The rush for investors to get out of the crisis sometimes forces the fund manager to block clients ’money.

According to Fitch Ratings, in March 2020, more than 80 European investment funds managing more than $ 40 billion in assets had to be canceled.

The CBI also called for the implementation of a new European macro-prudential framework for investment funds to improve investor guarantees.

“The lack of a macro-prudential framework for investment funds remains, in our view, a key gap in the set of European regulatory instruments,” Rowland said.

According to the CBI, new restrictions, leverage constraints and measures to address liquidity mismatches should be considered to strengthen the fund sector’s resistance to future shocks.