Central Bank of Ireland introduces macroprudential measures for Irish-authorised GBP-denominated LDI funds
Executive Summary
The Central Bank of Ireland (CBI) introduced binding macroprudential measures on 29 April 2024 requiring Irish-authorised GBP-denominated Liability Driven Investment (LDI) funds to maintain a minimum **300 basis point yield buffer** to withstand adverse UK interest rate shocks. This regulatory intervention directly addresses systemic risks exposed during the September-October 2022 UK gilt market crisis, where excessive leverage in LDI funds amplified financial stress across markets.
What Changed
The framework establishes the following core requirements for in-scope GBP-denominated LDI funds: Yield Buffer Requirement - Minimum resilience threshold of 300 basis points increase in UK yields - CBI clarifies this is a minimum floor, not a target; funds may prudently maintain higher buffers - Assets must be sufficiently liquid under both normal and stressed market conditions Yield Buffer Composition Rules - "External assets" or "third-party assets" cannot be included in the yield buffer - Non-UK rate-sensitive assets included in the buffer require appropriate risk assessment and regular resilience testing against simultaneous shocks - Assets must be capable of transformation into eligible margin/collateral assets "with requisite speed under normal and stressed market conditions" Scop
What You Need To Do
- *For Existing Fund Managers (by 29 July 2024)
- *Audit & Classification
- *Yield Buffer Assessment
- *Portfolio Restructuring
- Removal of external/third-party assets from buffer calculations
- Verification that non-UK rate-sensitive assets are appropriately risk-managed
Key Dates
Compliance Impact
Urgency Rating: HIGH
Who is Affected
Summary
The Central Bank of Ireland has today (29 April 2024) announced the introduction of macroprudential measures for Irish-authorised GBP-denominated Liability Driven Investment (LDI) funds. Building on the recent Consultation Paper “Macroprudential measures for GBP Liability Driven Investment funds”, the measures require that GBP-denominated LDI funds authorised in Ireland maintain sufficient resilience to be able to withstand a sudden and adverse shocks to UK interest rates.