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IOSCO consults on recommendations and good practices in liquidity risk management for funds

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Jul 06, 2017

On July 6, 2017, the In­ter­na­tional Or­ga­ni­za­tion of Se­cu­ri­ties Com­mis­sions (IOSCO) pub­lished a consultation paper which seeks to address structural vulnerabilities arising from asset management activities, as part of its mission to protect investors and mitigate systemic risk in global financial markets.

The consultation paper is entitled Recommendations of Liquidity Risk Management for Collective Investment Schemes, and builds on the guidance set out in IOSCO´s 2013 report Principles of Liquidity Risk Management for Collective Investment Schemes (CIS). It also addresses the structural vulnerabilities identified by the Financial Stability Board (FSB) regarding liquidity risk management in the asset management industry in its final recommendations published in January 2017. The FSB asked IOSCO to take forward the recommendations regarding the mismatch between fund investments and redemption terms for open-ended funds.

IOSCO´s consultation paper on the recommendations proposes revisions that supplement the 2013 liquidity report with additional recommendations and detailed guidance on several issues, including those highlighted in the FSB report. Topics covered in the consultation paper include disclosure to investors, the alignment between asset portfolio and redemption terms, availability and effectiveness of liquidity risk management tools and fund level stress testing. In addition, IOSCO includes additional recommendations on contingency planning and requests specific public comments on issues affecting exchange traded funds.

On the same date, IOSCO also published another paper, Open-ended Fund Liquidity and Risk Management – Good Practices and Issues for Consideration, that provides practical information, examples and good practices regarding open-ended fund liquidity risk management, to supplement its recommendations.

Re­view the press release on the IOSCO's web­site.

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