EU - ESMA Guidelines - Liquidity Management Tools for funds
On 12 March 2026, ESMA published its Guidelines On Liquidity Management Tools (LMTs) of UCITS and open-ended AIFs. These were unchanged from the Report on amended guidelines on liquidity management tools (LMTs) of UCITS and open-ended AIFs ('Revised Guidelines') published by ESMA on 18 December 2025. The Guidelines apply from 16 April 2026 for new funds and 16 April 2027 for existing funds.
The Guidelines followed on from the European Commission publishing on 17 November 2025 Delegated Regulations adopting the Final Regulatory Technical Standards (RTS) on LMT for funds. The delegated regulations made a number of amendments to ESMA's Final Report on Draft RTS on LMT under the AIFMD and UCITS Directive published on15 April 2025. Alongside the draft RTS, ESMA had published a Final Report on Guidelines on LMTs of UCITS and open-ended AIFs. To reflect the amendments to the RTS, ESMA have produced the Revised Guidelines which include targeted amendments relating to to redemption gates and transaction costs for anti-dilution LMTs.
As well as providing the draft RTS under AIFMD and under the UCITS Directive, the Final Report on the draft RTS provides a comprehensive response to the feedback received to the consultation and the resulting amendments made to the draft RTS.
The Guidelines on LMTs have been amended to recognise that responsibility for liquidity risk management and for the selection, activation and calibration of the appropriate LMTs sits solely with the manager.
ESMA took onboard many of the concerns AREF raised in its response to their consultations on the RTS and guidelines. ESMA sought input on draft Guidelines and Regulatory Technical Standards (RTS) for liquidity management tools (LMTs) under the revised AIFMD and UCITS Directive over the summer of 2024.
The draft RTS specified the characteristics of the LMTs. ESMA defined the constituting elements of each LMT, such as calculation methodologies and activation mechanisms.
The draft Guidelines provided guidance on how managers should select and calibrate LMTs, in light of their investment strategy, their liquidity profile and the redemption policy of the fund.
AREF liaised with INREV on a response to these consultations and submitted the following responses before 8 October 2024. Copies of these can be requested from RE:UK.
Over-arching views regarding the ESMA LMT consultations
Reply form to the consultation on Guidelines for LMTs of UCITS and open-ended AIFs
Reply form to the consultation on RTS for LMTs under the revised AIFMD and UCITS Directive
IOSCO - Guidance for Open-Ended Funds use of Anti-Dilution Liquidity Management Tools
In coordination with the FSB report:Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds,the International Organization of Securities Commissions (IOSCO) published in December 2023 its Final Report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes (FR/15/2023).
After considering the feedback from its consultation in July 2023 (see below), IOSCO provided in the Final Report the following guidance to responsible entities:
- Responsible entities should have appropriate internal systems, procedures and controls in place at all times in compliance with applicable regulatory requirements for the design and use of anti-dilution liquidity management tools (LMTs) as part of the everyday liquidity risk management of their Open Ended Funds (OEFs) to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs.
- As part of their liquidity risk management framework, responsible entities should consider and use appropriate anti-dilution LMTs for OEFs under management (where appropriate) to mitigate material investor dilution and potential firstmover advantage arising from structural liquidity mismatch in OEFs.
- Anti-dilution LMTs used by responsible entities should impose on subscribing and redeeming investors the estimated cost of liquidity, i.e., explicit and implicit transaction costs of subscriptions or redemptions, including any significant market impact of asset purchases or sales to meet those subscriptions or redemptions. Independently of the anti-dilution LMT used, responsible entities should be able to demonstrate to authorities (in line with the authorities’ supervisory approaches) that the calibration of the tool is appropriate and prudent for both normal and stressed market conditions.
- If responsible entities set thresholds for the activation of anti-dilution LMTs, those thresholds should be appropriate and sufficiently prudent so as not to result in any material dilution impact on the fund.
- Responsible entities should have adequate and appropriate governance arrangements in place for their liquidity risk management processes, including clear decision-making processes for the use of anti-dilution LMTs.
- Responsible entities should publish clear disclosures of the objectives and operation (including design and use) of anti-dilution LMTs to improve awareness among investors and enable them to better incorporate the cost of liquidity into their investment decisions and mitigate potential adverse trigger effects
On 5 July 2023 the International Organization of Securities Commissions (IOSCO) published a consultation report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes. The report provided detailed guidance to support greater and more consistent use of anti-dilution liquidity management tools (LMT) by responsible entities for open-ended funds – in both normal and stressed market conditions. IOSCO published this consultation report in coordination with the FSB’s consultation on Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds – Revisions to the FSB’s 2017 Policy Recommendations.
The aim of the proposed LMT guidance was to add granularity to IOSCO’s existing open-ended funds liquidity risk management framework on the use of anti-dilution LMT, including the 2018 Recommendations for Liquidity Risk Management for Collective Investment Schemes and Good Practices for Open-ended Fund Liquidity and Risk Management.
The proposed guidance identified five anti-dilution liquidity management tools: swing pricing, valuation at bid or ask prices, dual pricing, anti-dilution levies, and subscription/redemption fees.
The proposed guidance covered the design and use of anti-dilution liquidity management tools by open-ended funds including calibration of liquidity costs and appropriate activation thresholds; oversight of liquidity management tools by fund boards, managers’ boards or depositories; disclosure to investors; and overcoming barriers to effective implementation.
AREF's Public Policy Committee had some profound concerns regarding some of the recommendations in both the IOSCO and FSB consultation reports. With the Committee's assistance, AREF submitted responses to both the consultation reports in September 2023. Copies of these can be requested from RE:UK.
IOSCO - Liquidity Risk Management Recommendations for Collective Investment Schemes
On 26 May 2025, IOSCO published its Final Report on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes ('CIS'), alongside its Implementation Guidance.
The Final Report includes 17 recommendations across six sections:
- CIS Design Process
- Liquidity Management Tools and Measures
- Day-to Day Liquidity Management Practices
- Stress Testing
- Governance
- Disclosures to Investors and Authorities.
The Revised Recommendations for Liquidity Risk Management for CIS replace IOSCO’s 2018 Liquidity Risk Management Recommendations for CIS. The key revisions are:
- Revised Liquidity Recommendation 3 incorporates the categorisation approach, through which responsible entities should ensure that the OEF’s investment strategy and the liquidity of its assets should be consistent with the terms and conditions governing fund unit redemptions both at the time of designing an OEF and on an ongoing basis;
- Revised Liquidity Recommendation 6 emphasises that responsible entities should consider and implement a broad set of anti-dilution LMTs, quantity-based LMTs and other liquidity management measures to the extent allowed by local law and regulation for each OEF under their management, in both normal and stressed market conditions as part of robust liquidity management practices;
- Revised Liquidity Recommendation 7 specifies that responsible entities should consider and use anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs they manage. Such tools should impose on subscribing and redeeming investors the explicit and implicit costs of subscriptions and redemptions, including any significant market impact of asset sales to meet those redemptions; and
- Revised Liquidity Recommendations 6 and 17 reflect observations on quantity based LMTs and other liquidity management measures, which are supplemented by the Implementation Guidance for more detailed guidance.
The Implementation Guidance supplements the Revised Recommendations with more detailed guidance and good practices to support effective implementation.
Background
AREF responded in February 2025 to IOSCO's 3 month consultation on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”) (the ‘Revised LRM Recommendations’), especially for open-ended funds. A copy of AREF's response can be requested from RE:UK.
Originally published in 2018, IOSCO’s Liquidity Risk Management (LRM) Recommendations were published in response to the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities that aimed to address structural vulnerabilities from liquidity mismatch in open-ended funds. The Revised LRM Recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (“Revised FSB Recommendations”)(See above) from December 2023, as well as recent market events such as the COVID-induced market volatility and those following the war in Ukraine.
The proposals consisted of 17 recommendations organised into a revised structure with six sections, namely the CIS Design Process, Liquidity Management Tools and Measures, Day to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities. The key proposed revisions to the LRM Recommendations correspond to the targeted revisions from the Revised FSB Recommendations and can be grouped into four main areas:
- Categorising open-ended funds (OEFs) based on the liquidity of their assets
- Encouraging investment managers to implement a broad set of liquidity management tools (LMTs) and other liquidity management measures.
- Emphasising the importance of anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs.
- Incorporating new guidance on quantity-based LMTs and other liquidity management measures.
The Revised LRM Recommendations were accompanied by a consultation on the Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management (“Implementation Guidance”). This sets out technical elements focusing on open-ended funds, such as the determination of asset and portfolio liquidity and considerations relating to the calibration and activation of LMTs and other liquidity management measures.
Liquidity Management Contingency Plans
AREF has produced a template AFMs of FIIA can use as a basis for their requests for information from intermediate holders. View more information on the Liquidity Management Contingency plan here.
Recommendations of the European Systematic Risk Board on liquidity risks in investment funds
The General Board of the European Systematic Risk Board adopted a Recommendation to the European Securities and Markets Authority (ESMA) to coordinate with the national competent authorities in undertaking a focused piece of supervisory engagement with investment funds that have significant exposures to corporate debt and real estate assets.
The General Board emphasised that it is important that liquidity management tools are used in a timely manner, as necessary in such circumstances, especially by funds that invest in less liquid assets or assets that become temporarily illiquid and have short redemption periods.
Fund Suspensions
AREF, DATA (Depositary & Trustee Association) and The IA joint Suspensions Q&A guide can be downloaded here.
FCA letter on effective liquidity management
On 4th November 2019 the FCA published an open letter to AFMs on effective liquidity management.
Real estate fund behaviour following the EU referendum
April 2017 - The Independent report commissioned by AREF on real estate fund behaviour following the EU referendum.
FCA - Liquidity management for investment firms: good practice
February 2016 - Update from the FCA on liquidity management for investment firms
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