FR01/2018 Recommendations for Liquidity Risk Management for Collective Investment Schemes

Recommendations for Liquidity Risk Management for Collective Investment Schemes Final Report The Board OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS FR01/2018 FEBRUARY 2018 Copies of publications are available from: The International Organization of Securities Commissions website www.iosco.org © International Organization of Securities Commissions 2018. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. Foreword In 2013, the Board of the International Organization of Securities Commissions (‘IOSCO’) published a report which contained Principles of Liquidity Risk Management for Collective Investment Schemes (‘2013 Liquidity Report’) against which both the industry and authorities were asked to assess the quality of regulation and industry practices concerning liquidity risk management of collective investment schemes (‘CIS’).1 The 2013 Liquidity Report took into account the lessons learned from the financial cris is of 2007-10 and reflected the approach taken by member jurisdictions having responded to those events. The 2013 Liquidity Report was designed as a practical guide for authoriti es and industry practitioners and focused, for the most part, on the liquidity risk management of open-ended CIS.2 They were addressed to the entity / entities responsible for the overall operation of the CIS. It was recognised that implementation may vary from jurisdiction-to-jurisdiction, depending on local conditions and circumstances. Since then, IOSCO has actively engaged with the Financial Stability Board (‘FSB’) in their analysis of the potential systemic ris ks arising in relation to the liquidity ris k management of CIS, among other matters. The FSB, on January 12 2017, issued recommendations to address structural vulnerabilities from asset management activities that could potentially present financial stability risks.3 Eight of its nine recommendations relating to liquidity are addressed to IOSCO.4 In addition, a number of member jurisdictions have conducted further significant work either on updating their own regulatory framework or guidance with regard to liquidity risk management of CIS.5 1 IOSCO, Pr inciples of Liquidity Risk Management for Collective Investment Schemes, Final Report , Report of the Board of IOSCO, Marc h 2013, available at: https://www.iosco.org /li brary/pubdocs/pdf/IOSCOPD405.pdf 2 By open-ended CIS, in this document we mean a registered/authorised/public CIS which provides redemption rights to its investors from its assets, based on the net asset value of the CIS, on a regular periodic basis during its lifetime - in many cases on a daily basis, although this can be less frequently. 3 FSB, Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities (‘FSB Policy Recommendations’), January 12, 2017, available at: http://www.fsb.org/wp-content/uploads/FSB-Policy-Recommendations-on-Asset-Management-Structural- Vulnerabilities.pdf. 4 The seven recommendations relevant to liquidity are Recommendations 2-8 of the FSB Policy Recommendations. Regarding Recommendation 1 of the FSB Policy Recommendations, please see the IOSCO June 2016 Statement on ‘Priorities Regarding Data Gaps in the Asset Management Industry’, available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD533.pdf 5 See for example: • Financial Conduct Authority, Liquidity Management for Investment Firms: Good Practice, Feb 2016, available at: https://www.fca.org.uk/news/liquidity-management-for-investment-firms-good-practice • French AMF, Guide to the Use of Stress Tests as Part of Risk Management within Asset Management Companies, Aug 2016, available at: http://www.amf-france.org/en_US/Publications/Guides/Professionnels?docId=workspace%3A%2F%2FSpacesStore%2F8e10f441-056c-4809-9881-36c23a292200 • French AMF, Public consultation by the AMF on the terms for implementing gates in UCITS and AIFs, Dec 2016, available at: http://www.amf-france.org/en_US/Publications/Consultations-%20publiques/Archives.html?docId=workspace%3A%2F%2FSpacesStore%2F49e6bd83-3397-4ae4-bcc7-35975b6e9dcc • Hong Kong SFC, Circular to Management Companies of SFC-authorised Funds on Liquidity Risk Management, July 2016, available at: http://www.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=16EC29 Reducing systemic ris k is one of IOSCO’s three objectives of securities regulation. It forms part of IOSCO’s work to develop, implement and promote adherence to internationally recognised and consistent standards of regulation, oversight and enforcement. Principle Six of the IOSCO Principles and Objectives states that each regulator s