ESMA’s LMT framework is now live

With the publication of the final ESMA guidelines and regulatory technical standards (RTS) on LMTs in March 2026, the rules governing liquidity risk management for UCITS and open-ended AIFs have moved from design to application, after years of consultations, drafts and amendments. While the final guidelines do not reinvent the regime that was introduced in 2025, they provide important clarifications, address ambiguities and help align supervisory expectations across the European Union (EU) weeks before the rules apply.

For fund managers, this marks the point at which the framework becomes operational in practice.

From regulatory design to enforceable and operational standards

The April 2025 Final Reports outlined the ESMA’s vision for a harmonized approach to liquidity risk management across the EU. However, at that stage, the framework was still dependent on the draft RTS. With the March 2026 guidelines, the framework is now fully aligned with the RTS adopted by the European Commission in November 2025 and applicable from 16 April 2026.

This is more than a formal step. It reflects a major shift from a largely conceptual discussion of LMTs toward the need for fully operational frameworks where governance, data flows and clearly defined responsibilities are critical to ensuring effectiveness.

Why governance now matters as much as design

The final guidelines emphasize on how these LMTs are governed, calibrated and activated in practice.

In particular, the effectiveness of LMTs depends on how well the key actors interact:

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Fund/GP

Defines the investment strategy, liquidity profile and investor terms, setting the structural context within which LMTs operate;

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ManCo/AIFM

Owns the liquidity risk management framework, selects and calibrates LMTs, and decides on their activation;

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Central administrator

Provides the operational backbone, including NAV calculation, data inputs and execution capabilities.

Decision-making is central to the committee level. Its scope has also evolved, extending beyond traditional tools such as swing pricing and anti-dilution levies to broader decisions related to the LMT framework.

As a result, the LMTs will depend less on their theoretical design and more on the robustness of governance arrangements and the clarity of roles across the fund lifecycle.

From interpretation to implementation

With the guidelines applicable from April 2026, and a 12-month grandfathering period for existing funds, the industry’s focus is now firmly on execution.

In practice, this means embedding LMT frameworks into day-to-day operations. Doing so requires a regular improvement in liquidity risk monitoring, integration of capital flows against LMT activation thresholds, and definition of clear decision-making protocols.

Key focus areas include:

Defining and regularly reviewing LMT activation thresholds that reflect fund-specific liquidity risk factors;
Calibrating swing pricing/ADL factor models and backtesting against realized implicit as well as explicit cost drivers;
Implementing ad hoc review and activating LMTs in stressed market conditions.

Source: KPMG Market Intelligence

What stayed the same, and why it still matters

Although the guidelines do not introduce new liquidity management tools, they reinforce several core principles:

Managers must select at least two appropriate LMTs;
Suspensions and side pockets remain exceptional tools;
LMTs complement the established liquidity risk management framework. Ongoing liquidity monitoring and liquidity stress testing are imperative to identify emerging risks, inform escalation processes and provide support on timely LMT activation as required.

In addition, supervisory authorities are expected to assess the consistency between a fund’s liquidity profile, its stress testing outcomes, and the design and calibration of LMTs. In practice, any weaknesses in liquidity modelling, investor behavior assumptions or monitoring indicators are likely to be identified during supervisory reviews.

A more pragmatic view on anti-dilution costs

One of the notable changes in the final framework is the level of prescription on the treatment of transaction costs for anti-dilution tools (ADTs).

While the 2025 guidelines assumed the inclusion of both explicit and implicit transaction costs, the March 2026 version introduces a more pragmatic approach:

Explicit transaction costs must always be included;
Implicit costs, including market impact, are required where appropriate and on a best effort basis.

This adjustment helps reduce modelling complexity while preserving investor protection objectives. It also reflects operational constraints, while reinforcing the need for robust, documented methodologies within the liquidity risk management framework.

How KPMG can support

At KPMG Luxembourg, we support asset managers and management companies with end-to-end liquidity risk reporting solutions – from framework design and governance setup to liquidity risk metrics calculation and stress testing.

Our approach helps embed effective liquidity monitoring into daily operations, streamline reporting processes and enable informed, support informed decision-making across stakeholders in both normal and stressed market conditions.

Fueling fund growth with technology, actionable data and trusted expertise.