Global securities regulators have finalized a set of principles for ensuring adequate liquidity risk management for collective investments.
The International Organization of Securities Commissions (IOSCO) Monday published a final report that contains a set of principles for both the industry and regulators to use to assess the quality of regulation, and industry practices, concerning liquidity risk management for collective investment schemes (CIS).
IOSCO notes that liquidity issues have been a major concern for regulators since the onset of the financial crisis, but that most of the regulatory reform has focused on the importance of liquidity in the banking sector. This set of principles has been designed to address the specific liquidity risk management considerations for collective investments, such as investment funds.
“Good liquidity risk management is a key feature of the correct operation of a CIS,” it notes. “Its fundamental requirement is to ensure that the degree of liquidity that the open-ended CIS manages will allow it, in general, to meet redemption obligations and other liabilities.”
The principles, which are intended to be a practical guide for regulators and the industry, set out details on how compliance with this requirement can be achieved. This includes principles that should be considered in the design phase; and then measures that should form part of the day-to-day liquidity risk management process.