ESMA has published comprehensive guidelines detailing the appropriate use of liquidity management tools (LMTs) for Undertakings for Collective Investment in Transferable Securities (UCITS) and open-ended Alternative Investment Funds (AIFs). The guidelines cover various aspects, including the conditions under which LMTs can be employed, the types of LMTs available, and the governance and reporting requirements associated with their use. They are intended to ensure that fund managers adequately manage liquidity risks and protect investors.

These guidelines will require fund managers to review and potentially update their internal policies and procedures regarding liquidity risk management. Compliance officers should familiarize themselves with the specific requirements outlined in the document to ensure adherence. While the guidelines themselves are non-binding, national competent authorities are expected to ensure compliance, and failure to do so may lead to supervisory actions. The effective date for these guidelines is March 1, 2026, providing a transition period for implementation.