On 13 December 2019, the International Organization of Securities Commissions (IOSCO) published a final report, Recommendations for a Framework Assessing Leverage in Investment Funds, setting out a two-step process aimed at achieving a meaningful and consistent assessment of leverage-related risks of a fund or group of funds.
Step 1 provides an approach to how regulators using exposure metrics in various contexts and situations filter and select a subset of investment funds for further analysis. The goal of this process is to provide regulators with a means of efficiently identifying those funds that are more likely to pose risks to the financial system using at least one notional exposure metric (further described in chapter 2 of the final report).
Step 2 of the process involves a risk-based analysis on the subset of funds identified in step 1. IOSCO does not prescribe a particular set of metrics or other analytical tools. These are left at the discretion of regulators who are best placed to undertake the appropriate risk assessment of funds. The final report includes some illustrative specific cases and applicable measures for jurisdictions to consider.
IOSCO shall, incrementally over time, and based on the data available to it, publish an annual report reflecting leverage trends within the asset management industry at a global level. The first report is scheduled for 2021.