17 Dec 2020

On 17 December 2020, ESMA published its Guidelines on Article 25 of AIFMD.

The ESMA guidelines follow recommendations by the European Systemic Risk Board (ESRB) published in April 2018 on how to address liquidity and leverage risk in investment funds. The ESRB asked ESMA to produce guidance on Article 25 of the AIFMD (Directive 2011/61/EU), which provides for NCAs to identify the extent to which the use of leverage in the AIF sector contributes to the build-up of systemic risk in the financial system, risks of disorderly markets or risks to the long-term growth of the economy.

ESMA’s guidelines set out common criteria in order to promote convergence in the way National Competent Authorities (NCAs):

  • assess the extent to which the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system; and
  • design, calibrate and implement leverage limits.

The guidelines follow the 2 steps-approach introduced by IOSCO and translate this approach into the European framework. Furthermore, the guidelines provide NCAs with a set of indicators to be considered when performing their risk assessment and a set of principles that NCAs should take into account when calibrating and imposing leverage limits.

The guidelines will be translated into the official EU languages and subsequently published on ESMA’s website. They will become applicable two months after the publication of the translations.


Jacqui Bungay

Jacqui Bungay

AREF Policy Secretariat , AREF

Jacqui provides policy guidance and secretariat services to the AREF Board and AREF Management Committee as well as the following AREF Committees: Corporate Governance, ESG & Impact Investing, Investor, Public Affairs, Research and Information and Retails Funds. In addition, Jacqui monitors members’ compliance with AREF’s Code of Practice. 

Jacqui joined AREF in 2014 after working for over 25 years in fund compliance, client relationships and administration at Natwest Trustee & Depositary Services.