Featured Product

    IOSCO Issues Statement on Liquidity Risk Management Recommendations

    July 18, 2019

    IOSCO published a statement explaining why the February 2018 liquidity risk management recommendations provide a comprehensive framework for regulators to deal with liquidity risks in investment funds. As per the statement, the recommendations on liquidity risk management are aimed to prevent liquidity and redemption mismatches from arising, rather than to mitigate problems once they occur. The domestic regulators should apply the recommendations in a prescriptive manner to manage specific or idiosyncratic liquidity risks. Securities regulators are expected to ensure effective implementation of the recommendations. Some domestic regulators have already adopted, or are consulting on, liquidity management regimes consistent with the recommendations. IOSCO intends to conduct a review beginning in 2020 to gauge how the recommendations have been implemented in practice.

    The recommendations deal with the attendant benefits and risks when open-ended investment funds may exceptionally look to use other liquidity management tools (such as suspensions and swing pricing) in the face of untoward redemption pressures, including the need to treat investors fairly and to consider any broader market implications. The recommendations are unequivocal that—throughout the entire lifecycle of the fund (design, pre-launch, launch, and subsequent operations)—there should be an appropriate alignment between portfolio assets and redemption terms. The recommendations clarify that open-ended investment funds should not be managed in such a way that the investment strategy relies on any additional ex-post measures such as suspensions. These measures are not a substitute for sound liquidity risk management from the outset, so that the dealing frequency of units meets the anticipated liquidity needs of the fund under normal and foreseeable stressed market conditions. 

    The statement also highlights that, as some have suggested, pursuing a global “one size fits all” prescriptive approach would be impractical because this approach tries to match different asset classes, fund investment strategies, and redemption periods according to the universally applicable standards. This is because the fund management industry (compared to, for example, the banking sector) is extremely diverse. The recommendations on liquidity risk management do, however, contain practical, actionable principles that support the domestic regulators that may wish or need to pursue a prescriptive approach responsive to the nature of particular open-ended investment funds they supervise directly and/or specific characteristics of the local markets in which they operate. Domestic regulators may also need to address related conduct concerns—for example, the concerns that may arise from the way individual funds are managed or marketed, including the material disparities between legitimate investor expectations of liquidity (as per the disclosure materials or regulatory classification of a fund) and the reality.

     

    Related Links

    Keywords: International, Banking, Securities, Liquidity Risk Management, Liquidity Risk, Open-Ended Investment Funds, Investment Funds, IOSCO

    Featured Experts
    Related Articles
    News

    HKMA Consults on Supervisory Policy for OTC Derivatives Transactions

    HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.

    May 25, 2020 WebPage Regulatory News
    News

    PRA on Regulatory Capital and IFRS 9 Requirements for Payment Holidays

    PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.

    May 22, 2020 WebPage Regulatory News
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5208