Global securities regulators have issued a set of principles that address the issue of collective investment schemes, such as mutual funds, suspending redemptions.
The policymaking arm of the International Organization of Securities Commissions, its technical committee, has published its final report regarding the suspension of redemptions by collective investment schemes. It notes that the principles “provide standards against which both regulators and the industry can assess the quality of regulation and industry practices concerning suspensions of redemptions”.
Among other things, the principles require that firms manage liquidity risk to ensure they can meet their redemption obligations and other liabilities; and that the ability to suspend redemptions should be clearly disclosed to investors before they invest. They also set out the criteria for suspension, and best practices for firms during a suspension.
The principles are based on the basic duty of firms to manage liquidity to avoid suspensions as much as possible; and they generally cover all types of open-ended funds that offer a continuous redemption right, regardless of whether they are offered to institutional or retail investors.