The International Organization of Securities Commissions (IOSCO) has published a consultation paper entitled Recommendations for liquidity risk management for collective investment schemes (CIS).
The consultation paper builds on the guidance set out in IOSCO’s 2013 report Principles of liquidity risk management for collective investment schemes and seeks to address structural vulnerabilities arising from asset management activities, as part of its mission to protect investors and mitigate systemic risk in global financial markets. It also addresses the structural vulnerabilities identified by the Financial Stability Board (FSB) regarding liquidity risk management in the asset management industry in its final recommendations published in January 2017.
The consultation paper proposes revisions that supplement the 2013 liquidity report with additional recommendations and detailed guidance on several issues, including those highlighted in the FSB report Policy Recommendations to address structural vulnerabilities from asset management activities. Topics covered in the consultation paper include:
- disclosure to investors;
- the alignment between asset portfolio and redemption terms;
- the availability and effectiveness of liquidity risk management tools; and
- fund level stress testing.
In addition, IOSCO includes additional recommendations on contingency planning and requests specific comments on issues affecting exchange traded funds.
IOSCO has also published a consultation paper, Open-ended fund liquidity and risk management – good practices and issues for consideration that provides practical information, examples and good practices regarding open-ended fund liquidity risk management, to supplement its recommendations. For regulators, the paper can act as a reference guide that illustrates how various jurisdictions regulate liquidity risk practices within their remit. For the industry, the examples describe where, when and how certain tools have been used in the past and how they can be used in the future. Additionally, the report describes good practice for liquidity risk management throughout the entire life cycle of a fund. For investors, this document outlines scenarios in which the investor could expect an asset manager to use liquidity management tools to manage liquidity issues in certain funds.
The deadline for both consultation papers is 18 September 2017.