ESMA – Restrictions on Liability Driven Investments (LDI)

On April 29, the European Securities and Markets Authority (ESMA), published its response to the query brought by the Central Bank of Ireland (CBI) and the Commission de Surveillance du Secteur Financier (CSSF). ESMA welcomed the Authorities’ intention to apply restrictions to alternative investment funds (AIFs) in GBP that are employing an LDI strategy and are established respectively in Ireland or Luxembourg.

Already in 2022, ESMA supported proposed restrictions. The mentioned Authorities required the maintenance  of a resilience level of GBP-denominated LDI funds within a range of 300-400 basis points, while the new requirement is at least 300 basis points, as so called “yield buffer”.
The proposed measures will come into effect as from April 29, 2024. Therefore, all new LDI Funds in GBP established in Ireland and Luxembourg will need to immediately comply with the restriction, while those established before that date are required to conform within a maximum period of three months.

ESMA encourages both Authorities to monitor the evolution of GBP-denominated LDI Funds and to assess the need to recalibrate the yield buffer. Furthermore, ESMA invites the other competent National Surveillance Authorities to adopt similar measures.