| Summary: | This paper presents the technical assistance report on investment funds and interconnectedness risks in Albania. The fund sector has been expanding and remains highly concentrated. Interconnectedness between funds and the rest of the financial system is limited. On the liability side, retail investors mainly hold fund shares, and institutional investors play a minor role. On the asset side, funds do not have significant direct exposures to securities issued by financial entities. Exposures to the sovereign market are the main risk transmission channel between funds and the rest of the financial system, given the lack of liquidity of domestic sovereign bonds. The review recommends that Albanian Financial Services Authority (AFSA) should enhance its risk monitoring of the fund sector and its interlinkages with the rest of the financial system. The review recommends that AFSA consider expanding the range of Liquidity Management Tools available to funds. The current regulatory framework only foresees suspension of redemptions, while other tools could be used to mitigate the risk of destabilizing redemptions
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