Fri, Mar 27, 2020
ESMA Consults on Guidelines on the Assessment of Leverage Related Systemic Risks and Leverage Limits
Executive Summary
Mar 27, 2020
Guidance for Firms on COVID-19
Mar 31, 2020
FCA Consultation Paper 19/32 – Building Operational Resilience
Dec 05, 2019
ESMA Launches a Common Supervisory Action with NCAs on MiFID II Suitability Rules
Feb 05, 2020
Post Brexit – Provision of Services in the EU
Jan 31, 2020
ESMA Consults on Guidelines on the Assessment of Leverage Related Systemic Risks and Leverage Limits
Mar 27, 2020
Two Non-Executive Directors Appointed to the Financial Conduct Authority (FCA) Board
Feb 06, 2020
ESMA Publishes the Final Report on MiFIR Alignments Following the Introduction of EMIR Refit
Feb 07, 2020
Sustainable Financial Markets – Translating Changing Risks and Investor Preferences into Regulatory Action
Feb 12, 2020
Sheldon Mills Appointed as Interim Executive Director of Strategy and Competition
Feb 13, 2020
ESMA Finds Continued High Risks as Markets Remain Highly Volatile
Feb 19, 2020
FCA Publishes the Number of STORs Received in 2019
Feb 28, 2020
FCA Speech – Enforcement Penalties and Remediation
Feb 13, 2020
- View all articles

ESMA has published a consultation on guidelines on the assessment of leverage and related systemic risks, aimed at ensuring that National Competent Authorities (NCAs) adopt a consistent approach to the supervision of Alternative Investment Fund Managers (AIFM), managing leveraged Alternative Investment Funds (AIFs), under Article 25 of the AIFM Directive.
Under the proposed guidelines, NCAs should assess the level, source and different usages of leverage by identifying AIFs,
- using leverage on a substantial basis,
- AIFs employing leverage but not on a substantial basis, with assets above €500 million,
- other AIFs with unusually high use of leverage, which may pose risks to financial stability.
To assess leverage related risks to financial stability of the above AIFs, NCAs should include in their assessment at least the following risks;
- market impact,
- fire sales,
- direct spill-over to financial institutions,
- interruption in direct credit intermediation.
NCAs’ risk assessments should include data reported under Annex IV of the AIFM Directive.
Under the guidelines, NCAs imposing leverage limits should consider the risks posed by funds according to their investment style, risk profile and any risks posed by common exposures of a group of AIFs.
The guidelines provide guidance to NCAs on the phasing in and out of leverage limits. For example, where an NCA imposes continuous leverage limits on an AIF, those limits should be maintained, as long as the risks posed by the AIF do not decrease. NCAs should implement leverage limits progressively to avoid procyclicality.
NCAs should evaluate the efficiency of leverage limits in mitigating excessive leverage by considering the proportionality of leverage limits to the systemic risk posed by the use of leverage of the AIF and the robustness of leverage limits to arbitrage.
The consultation is open until September 1, 2020. A link to the consultation is available here.
Financial Services Compliance and Regulation
End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.
European Compliance Services
Comprehensive compliance and regulatory support for EU firms.
UK Compliance Services
Comprehensive compliance and regulatory support for FCA authorized firms.
Compliance Consulting
Expert compliance support for a variety of firms including hedge funds, private equity firms, wealth managers, corporate finance and broker-dealers.