(BFM Bourse) – Verification of clients on the blacklist, freezing of assets, liquidity problems… Portfolio managers are facing many challenges due to European sanctions against Moscow.
As part of the sanctions regime against Russia, which was extended to the financial sector following the military invasion in Ukraine, the French Financial Markets Authority called for proactive vigilance by portfolio managers (SGP). What should they actually do?
What does the Autorité des marchés financiers say?
At the beginning of March, the AMF reminded portfolio management companies that all the European asset freezing measures imposed on Russian persons and entities had to “be implemented without delay” by the operators, imposing on them an “obligation result”. A regulated financial entity that has failed to identify or report sanctioned nationals or entities will be in violation of the regulations.
The AMF also asks portfolio management companies to “report without delay any significant problem that could affect their activities”, to be “vigilant” in the face of the increased risk of cybersecurity incidents and to manage liquidity risk.
The European regulator of the financial markets (Esma) indicated at the beginning of the week that it had redirected to the European Commission “several requests for clarification” on the scope and application of the sanctions.
What constraints for AMCs?
The regulations already required verification of the identity of all customers and regular monitoring over time of the customer base and business relationships, in particular to prevent money laundering in transactions.
“Apart from the current lists of sanctions and freezing of assets, there are already around twenty lists to be scrutinized each time you enter into a relationship with a client and it is therefore impossible to control them manually,” Dimitri told AFP. Parraud, specialist in compliance, anti-money laundering and terrorist financing issues at Kroll, a consulting firm in governance, risk management and transparency.
“As the lists are updated almost daily, this requires regulatory compliance teams to check almost every day for new people on these blacklists.”
“Certain players who were perhaps not quite squared” not necessarily having the means available to carry out this “accelerated” screening and update customer and investment data, will have to “put themselves at the level very quickly” and adopt, for example, automatic systems which send alerts in the event of appearance on the blacklists.
What impact on portfolios?
The AMF warns that during this period, “the valuation and liquidity of exposures linked to Russian assets can change significantly and very quickly” and expects financial players “to anticipate changes in market conditions” , in other words that they pay attention to liquidity and the valuation of assets.
“Everyone is looking to sell their assets linked to Russia, but the exposure is quite limited in France”, underlines Dimitri Parraud, observing that there are “funds which anticipated and succeeded in selling them before” the sanctions linked to the current crisis and “those who can do nothing about them” except revise their value downwards, in the hope of parting with them.
Since the market for supply and demand do not meet and, to prevent funds from being blocked, several options present themselves, such as suspending funds whose objective was to invest in Russian securities or resorting to “side pocket” to take them completely out of the wallet.
This “containment mechanism” created during the subprime crisis consists of isolating in a pocket the part of the assets that have become difficult to sell to allow the SGP to continue to live its life by managing healthy assets and honoring subscription requests. and redemption on these assets.
(With AFP)
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