Swedish FSA to analyze how fund managers value illiquid assets

European watchdog ESMA wants to have a broader consensus between national regulators on how managers value assets like unlisted equities and structured products. Sweden’s regulator will look at 11 managers in its broader analysis, focusing on four specific asset classes.
Photo: https://www.fi.se/en/about-fi/
Photo: https://www.fi.se/en/about-fi/

Sweden’s financial regulator (Finansinspektionen) wants an overview of how fund managers and managers of alternative investment funds (AIF) are assessing the value of less liquid portfolio holdings.

Monitoring how managers adhere to EU regulations like UCITS and AIFMD is a crucial part of the FSA’s regulatory work, alongside investigating how managers ensure that methods of valuing such assets are credible, both in a normal and a distressed market.

The FSA has therefore decided to start by analyzing 11 asset managers in Sweden and has opted to focus on valuation methods and documentation concerning corporate bonds, unlisted equities, structured products and credit, according to an official statement.

A reliable process for valuing a fund’s assets is a central part of consumer protection, according to the FSA. If routines are not working properly, especially in distressed markets, investors may experience difficulties in buying or selling the assets.

“The Corona pandemic during the spring of 2020 and the sanctions against Russia during the spring this year have strengthened the FSA’s position on the importance of each manager having a robust function for valuation, so that funds can stay open as much as possible, even in more turbulent environments,” says Catrin Hådén, deputy director of conduct supervision at the FSA, in the statement.

This deeper investigation is one of several activities the Swedish regulator has conducted to ensure a better regulated fund space. Others include transparency in the fixed income space, which was prompted by activities in the early stages of the pandemic.

At that time, 12 Nordic managers closed their bond funds for deposits and redemptions for a brief period due to issues with valuing the underlying assets.

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