International Body Issues Statement on Liquidity Risk Management Recommendations for Investment Funds
07/18/2019The International Organization of Securities Commissions has issued a statement on its Liquidity Risk Management Recommendations for investment funds. The statement is in response to the U.K.'s Financial Policy Committee's Financial Stability report which stated that the IOSCO Liquidity Risk Management Recommendations do not prescribe how it should be ensured that funds' assets and investment strategies are consistent with their redemption terms. IOSCO's statement sets out how the Recommendations provide a comprehensive framework for regulators to address liquidity risks in funds. IOSCO notes that the Recommendations allow some flexibility as to how they are implemented by jurisdiction due to the diversity of the funds sector. IOSCO does not believe that a global prescriptive standard is appropriate and will undertake an exercise in 2020 to assess how the recommendations have been implemented across the globe.
IOSCO notes that some national regulators have taken steps to implement the Recommendations. The U.K. Financial Conduct Authority is expected to publish its final rules to address the fact that open ended funds investing in illiquid assets have a potential structural liquidity mismatch which, under stress, can create a "first mover" advantage that may lead to runs on funds and sales of fund assets at reduced prices. The FCA's proposals included implementation of IOSCO's Recommendations.
View the statement.
View details of IOSCO's 2018 Liquidity Risk Management Recommendations.
View the U.K. FPC Financial Stability report.
View details of the FCA's consultation.
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