In its comprehensive responses to ESMA’s consultations on both the draft Guidelines and the Regulatory Technical Standards (RTS) on Liquidity Management Tools (LMTs), BETTER FINANCE strongly advocates for a regulatory framework that ensures effective fund liquidity management while upholding the fundamental rights and protections of retail investors. While recognising the necessity of robust LMTs in maintaining financial stability and safeguarding collective investment undertakings, BETTER FINANCE consistently underscores the risk of unintended harm to retail investors, particularly in terms of transparency, proportionality, and equal treatment.
BETTER FINANCE stresses that any selection, calibration, and activation of LMTs must be carefully aligned with the nature of the fund’s investor base, especially where retail investors are concerned. A key concern raised is the risk of overcharging retail investors through anti-dilution tools (ADTs), swing pricing, or redemption fees, particularly when these tools are poorly calibrated or simultaneously activated, leading to the potential for double-charging. BETTER FINANCE calls for prohibiting the concurrent use of multiple ADTs, as well as for heightened supervisory scrutiny and limitations on the application of these tools in funds distributed to retail clients.
BETTER FINANCE is notably critical of redemption fees, asserting that they do not constitute a genuine liquidity management instrument, but rather an arbitrary and static charge that fails to reflect the actual liquidity cost associated with redemptions. Consequently, it recommends excluding redemption fees altogether from the list of permissible LMTs for retail investor funds.
In relation to governance and disclosure, BETTER FINANCE supports the establishment of harmonised minimum standards but insists that communication strategies and LMT policies be adapted to reflect the complexities and realities of retail distribution channels, including unit-linked wrappers. To that end, it recommends the mandatory use of plain-language disclosures, supported by visuals where relevant, and proactive investor notifications through accessible and timely channels such as email or SMS. This approach aims to bridge the significant knowledge gap between institutional and retail investors, particularly in crisis situations when LMTs are triggered.
Furthermore, BETTER FINANCE calls for stricter requirements on fund managers' capacity to estimate liquidity costs accurately before being permitted to use complex tools such as swing pricing or dual pricing. It also urges ESMA to mandate that all communication plans associated with LMT activation be prepared ex ante, rather than during the event, to prevent reactive and inadequate responses that disadvantage retail participants.
Finally, while generally supportive of ESMA's objectives to harmonise practices across Member States and investment fund types, BETTER FINANCE recommends greater differentiation between UCITS and AIFs in recognition of the greater retail investor exposure within UCITS. It argues that LMTs should only be employed under genuinely exceptional market stress and that their implementation must be demonstrably in the best interest of all investors, with clear justifications required from fund managers.
In essence, BETTER FINANCE calls for a retail investor-centric approach that places transparency, proportionality, and the prevention of financial harm at the core of the European regulatory framework on liquidity risk management.
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