The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, is welcoming the initiative of two National Competent Authorities (NCAs) in relation to Liability Driven Investment Funds (LDI Funds).

Today, the Central Bank of Ireland (CBI), and the Commission de Surveillance du Secteur Financier (CSSF) published letters addressed to LDI fund managers asking them to maintain the current level of resilience and the reduced risk profile of GBP LDI funds. According to these letters, managers wanting to reduce GBP LDI Fund’s yield buffers below the current levels shall inform their NCA in advance and provide a justification.

LDI funds denominated in GBP proved to be vulnerable to the volatility surge in the UK gilts market in September 2022. NCAs engaged with GBP LDI Fund managers who subsequently increased the resilience of their funds. ESMA underlines the importance of increasing funds resilience as large and unexpected shocks can unfold rapidly in the current economic conditions.

In that context, ESMA supports coordinated supervisory actions and information sharing among NCAs, as well as converging measures to address risks that may pose a potential threat to financial stability.