IOSCO Issues Review of Liquidity Risk Management

  • Some jurisdictions may need to improve the process of identifying a liquidity shortage before it occurs
  • larger jurisdictions have a high level of compliance with regulatory requirements
  • Effective liquidity management is critical to safeguarding the interests of investors

International Organization of Securities Commissions (IOSCO) has released a review paper to assess the implementation of the 2018 recommendations for strengthening the liquidity risk management practises of collective investment schemes (CIS).

The Review assists in determining whether  IOSCO members have implemented appropriate regulatory requirements for LRM processes.

The Review discovered that larger jurisdictions have a high level of compliance with regulatory requirements that are consistent with the Recommendations’ objectives.

The Review identified some challenges for the CIS design process in terms of dealing frequency, dealing arrangements, and disclosure practices.

The Review assessed that some jurisdictions may need to improve the process of identifying a liquidity shortage before it occurs and provide more guidance on aligning the investment strategy, liquidity profile, and redemption policy for day-to-day liquidity management.

In terms of contingency planning, the Review concluded that jurisdictions should address the availability of liquidity management tools further and supplement current rules and regulations to include more specific requirements for the use of such tools.

“Effective liquidity management is critical to safeguarding the interests of investors,” says IOSCO Board Chairman Jean Paul Servais.

The publication of the Liquidity Risk Management for Collective Investment Schemes (LRM) Report in 2018 gave IOSCO members the opportunity to make necessary changes to their regulatory framework.

IOSCO has also issued a feedback statement, which summarises stakeholder perspectives on potential ways to improve market functioning and liquidity provision in corporate bond markets.

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