On 15 November 2018, the International Organization of Securities Commissions (IOSCO) published a consultation paper on the use of leverage by investment funds (the Consultation). The Consultation responds to recommendation 10 of the Financial Stability Board’s (FSB) report ‘‘Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities” in which the IOSCO was requested to: “identify and or develop consistent measures of leverage in funds to facilitate more meaningful monitoring of leverage for financial stability purposes, and help enable direct comparisons across funds and at a global level”.

The Consultation outlines a proposed framework that could facilitate regulators calculating and analysing leverage in funds over time in a sufficiently consistent manner across jurisdictions. This would be carried out in two steps:

• step 1 provides an approach to how regulators could use exposure metrics in various contexts and situations complemented by additional information, to filter and select which funds may pose leverage-related financial stability risks, for further analysis. The calculation and reporting techniques for step 1 are provided in Appendix A to the Consultation; and
• step 2 would involve further risk-based analysis of the sub-set of funds identified in step 1. The IOSCO does not prescribe a particular set of metrics or other analytical tools for this. Examples of the applications of step 2 are provided in Appendix C to the Consultation.

The deadline for responses to the Consultation is 1 February 2019.