The update directly addresses liquidity management tools for collective investment funds (UCITS and AIFs), which are investment vehicles managed by investment firms handling client assets and implementing investment strategies.
Low confidence — REQUIRES HUMAN REVIEW. While the guidance covers fund management broadly, no specific asset class (equities, fixed income, digital assets, or cash equivalents) is the primary focus; the guidance applies generically across fund types.
Specialism
The update establishes supervisory guidance on liquidity management instruments for collective investment funds, requiring fund managers to demonstrate appropriate calibration and activation of LMIs to manage liquidity risk.
Mandatory inheritance: Liquidity is a child of Prudential Standards, so Prudential Standards must be raised as the secondary tag.
2026-03-13 08:50:19·adavies@vixio.com
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TITLE: European Securities and Markets Authority Issues Guidance on Liquidity Management Tools for Collective Investment Funds
BODY:
On 12 March 2026, the European Securities and Markets Authority (ESMA) published guidance on liquidity management instruments (LMIs) for undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) of open-ended type.
The guidance implements mandates established under Directive (EU) 2024/927, which amended the UCITS Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EC). ESMA's guidance establishes consistent supervisory practices for the selection, calibration, activation and deactivation of LMIs to manage liquidity risk and mitigate financial stability risks.
The guidance addresses two categories of LMIs: quantitative instruments (redemption restrictions, extended notice periods, redemption gates and in-kind redemptions) and value-preservation instruments (redemption fees, variable pricing, dual pricing and swing pricing). ESMA emphasises that fund managers retain primary responsibility for liquidity risk management and must demonstrate that selected LMIs are appropriate, effective and in investors' best interests. Fund managers should consider selecting more than the minimum two required LMIs and should calibrate activation thresholds carefully to avoid significant dilution effects on remaining investors. The guidance also addresses suspension of subscriptions and redemptions, which ESMA states should only be activated in exceptional circumstances. Additionally, ESMA provides guidance on side pocket mechanisms, which should similarly be reserved for extraordinary circumstances such as significant valuation uncertainty or illiquidity affecting specific portfolio portions.
Competent authorities must notify ESMA within two months of publication whether they comply with the guidance, providing reasons for any non-compliance. The guidance applies from the effective date of the technical regulatory standards referenced in the amended directives, with a 12-month transition period for existing funds.