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IOSCO recommendations about liquidity risk management

05/09/2019

On 18 July 2019, the International Organization of Securities Commissions (IOSCO) published a statement in response to commentary on whether its Recommendations for Liquidity Risk Management for Collective Investment Schemes dated February 2018 (LRM Recommendations) are adequate.

Specifically, the Bank of England’s Financial Policy Committee’s Financial Stability Report dated July 2019 states “funds’ assets and investments strategies should be consistent with their redemption terms” and that IOSCO’s LRM Recommendations “did not prescribe how this should be achieved”.
IOSCO has also supplemented its earlier work with additional recommendations: notably, the consideration of underlying liquidity throughout the entire life cycle of the fund (design, pre-launch, launch and ongoing daily operation); the alignment between asset portfolio and redemption terms; availability and effectiveness of liquidity risk management tools; fund level stress testing; detailed guidance on disclosure to investors; and additional recommendations on contingency planning. IOSCO intends to conduct an assessment exercise beginning in 2020 which will review how the 2018 LRM Recommendations have been implemented in practice.

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