IOSCO consults on liquidity risk management recommendations for CIS

What's new?

On 11 November 2024, the International Organisation of Securities Commissions (IOSCO) released two consultation reports:

• the first seeking feedback on proposed revisions to its recommendations for liquidity risk management (LRM) for CIS; and

• the second on implementation guidance for its revised recommendations, which details technical considerations such as the determination of asset and portfolio liquidity.

Whilst the consultations are of relevance to open-ended CIS, some recommendations may also be relevant to closed-ended CIS, depending on the jurisdiction.

The proposed revisions to IOSCO's original LRM recommendations, published in 2018, aim to incorporate the 2023 policy recommendations of the Financial Stability Board (FSB), both to address the risks associated with liquidity mismatch in open-ended funds and to reflect recent market events such as the COVID-19 pandemic.

Overall, IOSCO is proposing 17 recommendations, structured under the following six sections:

1. The CIS Design Process

2. Liquidity Management Tools and Measures

3. Day to Day Liquidity Management Practices

4. Stress Testing

5. Governance

6. Disclosures to Investors and Authorities

The proposed revisions to its original LRM recommendations include minor editorial changes to improve readability alongside more substantive changes which are aligned with the new FSB recommendations.

Next steps

The consultations will both close on 11 February 2025 and IOSCO aims to produce its final report in the first half of 2025.

IOSCO will review the progress of adopting the proposed revised recommendations and implementation guidance by member jurisdictions, with the aim of assessing whether the reforms have adequately addressed the systematic risks to financial stability.