On 16 November 2022 IOSCO published the Final Report from their Thematic Review of their Liquidity Risk Management Recommendations.
Key findings in the report were:
- Larger jurisdictions show a high degree of implementation of regulatory requirements consistent with the objectives of the Recommendations.
- For the CIS design process, some challenges were identified with respect to dealing frequency, dealing arrangements and disclosure practices.
- For day-to-day liquidity management, it was found that some jurisdictions may need to improve the process of identification of a liquidity shortage before it occurs and provide more guidance on aligning the investment strategy, liquidity profile and redemption policy. Other related areas that may warrant further attention include data availability and third-party providers of liquidity metrics.
- With regards to contingency planning, it was found that jurisdictions should further address the availability of liquidity management tools and supplement the current rules and regulations to include requirements that are more specific regarding the use of such tools.
- Responsible entities (i.e., asset managers) have a high degree of implementation of the Recommendations at the level of policies and practices. While all large global responsible entities described practices that were consistent with the Recommendations, improvement might be needed by smaller and less-resourced entities with regard to their liquidity disclosure provisions in their CIS design process.
- Some weaknesses were also identified in operationalizing contingency plans and activation of liquidity risk management tools.
Background
IOSCO launched in March 2021 its Thematic Review of the Recommendations for Liquidity Risk Management for Collective Investment Schemes issued by IOSCO in 2018. The Thematic Review aimed to assess the extent to which the Recommendations have been implemented through member regulatory frameworks. It also aimed to gather information about how how entities responsible for the overall operations of collective investment schemes (responsible entities), to whom the recommendations are directed, implemented them in practice.
Alongside the Thematic Review, IOSCO and the Financial Stability Board (FSB) conducted a joint analysis of the availability, use and impact of liquidity risk management tools for open-ended funds (OEFs). The Joint Analysis examined the experience of OEFs that faced redemption pressures during the COVID-19 induced market stresses of March and April 2020; the availability, use and impact on the broader market of liquidity risk management tools and how these were linked to the liquidity of underlying assets.
To inform both the Thematic Review and the Joint Analysis, IOSCO issued a Market Participants' Survey. The Market Participants’ Survey collected information from responsible entities on their:
- adoption and practical implementation of the Recommendations
- liquidity risk management practices and experiences during the March 2020 market turmoil.
It was voluntary for responsible entities to participate in the Markets Participants’ Survey. Individual responses were kept confidential and anonymous.