On 11 November 2024, IOSCO published two consultations on:
- Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”) (the ‘Revised LRM Recommendations’), especially for open-ended funds.
- Guidance for Open-ended Funds for Effective Implementation of the Recommendations for Liquidity Risk Management (“Implementation Guidance”).
Originally published in 2018, IOSCO’s Liquidity Risk Management (LRM) Recommendations were published in response to the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities that aimed to address structural vulnerabilities from liquidity mismatch in open-ended funds. Today’s Revised LRM Recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (“Revised FSB Recommendations”) from December 2023, as well as recent market events such as the COVID-induced market volatility and those following the war in Ukraine.
The proposals consist of 17 recommendations organised into a revised structure with six sections, namely the CIS Design Process, Liquidity Management Tools and Measures, Day to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities. The key proposed revisions to the LRM Recommendations correspond to the targeted revisions from the Revised FSB Recommendations and can be grouped into four main areas:
- Categorising open-ended funds (OEFs) based on the liquidity of their assets
- Encouraging investment managers to implement a broad set of liquidity management tools (LMTs) and other liquidity management measures.
- Emphasising the importance of anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs.
- Incorporating new guidance on quantity-based LMTs and other liquidity management measures.
The accompanying Implementation Guidance sets out technical elements focusing on open-ended funds, such as the determination of asset and portfolio liquidity and considerations relating to the calibration and activation of LMTs and other liquidity management measures.
The consultations run until 11 February 2025. AREF's Public Policy Committee will be overseeing AREF's response to these consultations. Any members who would like to cotribute to AREF's response please contact Jacqui Bungay, Head of Policy ([email protected]).
Author
