24 Jul 2020

On 30 September new COLL Rules come into effect. The rules introduce new obligations on Authorised Fund Managers (AFMs)/Authorised Corporate Directors (ACDs) regarding their liquidity plans for funds invested in inherently illiquid assets. (COLL 6.6.3CR and 6.6.3ER – Please see below). As part of their liquidity management contingency planning, AFMs of Funds Investing in Inherently Illiquid Assets (FIIAs) will require from intermediate holders, investing in their FIIA, confirmation in writing that they can:

  1. deploy any liquidity management tools and arrangements on which the authorised fund manager plans to rely as part of its contingency plan;
  2. in a timely way, communicate the authorised fund manager’s use of any such tools and arrangements to unitholders; and
  3. carry out any other part of the contingency plan which the authorised fund manager has identified as requiring action by that third party.

To assist AFMs of FIIAs in obtaining this information we have produced a template AFMs can use as a basis for their requests for information from intermediate holders. There is no compulsion to use this template and it can be adapted however an individual firm wishes.

 

6.6.3CR

The authorised fund manager of a FIIA must establish, implement and maintain an adequate liquidity management contingency plan for exceptional circumstances which sets out:

  1. how the authorised fund manager will respond to a liquidity risk crystallising;
  2. the range of liquidity tools and arrangements which it may deploy in such exceptional circumstances, any operational challenges associated with the use of such tools and the likely consequences for investors;
  3. the procedures for working with the depositary in the event the authorised fund manager must deploy these tools and arrangements;
  4. how the authorised fund manager will work with its delegates, such as third-party administrators, and other relevant third parties including intermediate unitholders, to:
    1. deploy the liquidity management tools and arrangements;
    2. communicate their use in a timely way to unitholders; and
    3. implement any other part of this contingency plan;
  1. any operational challenges likely to arise from working with relevant third parties identified at (4); and
  2. communication arrangements for internal and external concerned parties (including the FCA, investors and the media where necessary).

6.6.3ER  

  1. The authorised fund manager of a FIIA must obtain written confirmation from any relevant third party identified in the contingency plan under COLL 6.6.3CR(4) that the third party will be able to undertake the matters specified in (2) as soon as is reasonably practicable.
  2. The matters specified for the purpose of (1) are that the relevant third party will, where necessary, be able to:
    1. deploy any liquidity management tools and arrangements on which the authorised fund manager plans to rely as part of its contingency plan;
    2. in a timely way, communicate the authorised fund manager’s use of any such tools and arrangements to unitholders; and
    3. carry out any other part of the contingency plan which the authorised fund manager has identified as requiring action by that third party.

Author

Jacqui Bungay

Jacqui Bungay

AREF 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.