ESMA’s Common Supervisory Action on the valuation of UCITS and open-ended AIFs

On 20th January 2022, the European Securities and Markets Authority (‘ESMA’) announced the launch of a Common Supervisory Action (‘CSA’) which will be conducted throughout the course of 2022 with National Competent Authorities (‘NCAs’) on the valuation of UCITS and open-ended Alternative Investment Funds (‘AIFs’) across the EU.

This is the third CSA that ESMA has launched in relation to the asset management sector and will primarily focus on UCITS Management Companies (‘UCITS ManCos’) and Alternative Investment Fund Managers (‘AIFMs’) authorised managers of UCITS and open-ended AIFs investing in less liquid assets which ESMA has identified to be the following:

• Real estate;
• Unrated bonds;
• High yield bonds;
• Corporate debt;
• Emerging markets;
• Listed equities that are not actively traded; and
• Bank loans

A common assessment framework developed by ESMA will be used by the participating entities of this CSA, thereby ensuring that the knowledge and experience shared will be provided in a convergent manner.

The scope of the CSA will be to analyse the way UCITS ManCos and AIFMs comply with the relevant valuation-related provisions in the UCITS Directive, AIFMD and related EU Regulations in the performance of the valuation function. In doing so, ESMA aims to foster convergence between licensed entities with regards to the valuation methodologies, policies and procedures adopted, thereby ensuring that less liquid assets are valued fairly and consistently across the EU, both during normal and stressed market conditions.

The Malta Financial Services Authority (‘MFSA’) has communicated that it will be participating in this CSA, and will assess the national governance structures, policies and procedures which are relevant to the theme of this CSA and will also reach out to relevant licence holders in line with the methodology provided by ESMA.