The International Organization of Securities Commissions (IOSCO) published its final report on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (CIS), alongside its Implementation Guidance.
It includes 17 recommendations across six sections: CIS Design Process, Liquidity Management Tools and Measures, Day-to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities.
IOSCO Board chair Jean-Paul Servais, who also serves as chair of the Belgium Financial Services & Markets Authority, said in a statement: “These publications are a major milestone on a very important topic in financial markets. Regulators should carefully review the Revised Recommendations alongside the Implementation Guidance, considering appropriate requirements for responsible entities, and how to supervise liquidity management practices on an ongoing basis.”
Christina Choi, executive director at the Securities & Futures Commission Hong Kong, who chairs IOSCO’s Committee on Investment Management, said in a statement: “Promoting effective liquidity risk management is one of IOSCO’s key objectives. The Revised Recommendations and the Implementation Guidance fulfil our core aims of investor protection and financial stability. Today’s publication represents significant progress in taking forward the work we have carried out alongside the FSB and provides a clear and timely framework for investment managers to enhance liquidity management amidst current macro conditions and challenges.”
In a statement, the Alternative Investment Management Association (AIMA) noted that securities regulators will need to review existing rules to see if they need to be amended to conform with the revised recommendations. The previous version of the recommendations was issued in 2018. IOSCO expects to have carried out an implementation review by the end of 2026.
AIMA deputy CEO Jiří Król said in a statement: “We are pleased that IOSCO has agreed with our advice to make it explicit that one size does not fit all funds. This is important as it will stop funds from being forced to take actions that could harm investors.
“National regulators should keep this in mind as they review their rules to avoid the risk of funds being forced to use inappropriate liquidity management tools.
“We are, however, disappointed by the continued use of the flawed concept of ‘liquidity bucketing’. It does not take proper account of the variety of ways that investment funds which may look similar, are in fact, structured. This superficial approach may lead to funds being forced to use the wrong liquidity management tools at the wrong time.”