The International Organization of Securities Commissions (www.iosco.org) published today (4 March) a report on liquidity risk management for collective investment schemes (CIS). This aims to make sure in particular that open-ended funds (where people can sell their units back to the fund when they want their money back) can meet their obligations for redemptions and other liabilities.
Liquidity has been a major preoccupation for regulators in many financial industries since the outbreak of the global financial crisis. But discussions have mostly focused on liquidity in banking.
Today’s report is Principles of Liquidity Risk Management for Collective Investment Schemes and contains principles against which both the industry and regulators can assess the quality of regulation and industry practices. Good liquidity risk management is key in correct operation of a CIS.
The principles are structured according to the time frame of a CIS’s life: first principles to be considered in the design (pre-launch) phase of a CIS; then principles that should form part of the day-to-day liquidity risk management process. When industry is implementing the principles, they will have to rewrite (“transpose”) them while taking into account the local regulatory framework
IOSCO had previously published (Jan 2012) a report on Principles on Suspensions of Redemptions in Collective Investment Schemes which covers exceptional circumstances where a liquidity problem may lead a CIS to temporarily suspend all investor redemptions.
IOSCO is the leading international policy forum for securities regulators and is the global standard setter for securities regulation. The organization’s membership regulates more than 95% of the world’s securities markets in 115 jurisdictions and it continues to expand. Its Board is the governing and standard-setting body and is made up of 32 securities regulators and chaired by Masamichi Kono, Vice Commissioner for International Affairs at the Financial Services Agency of Japan (JFSA). Members are the securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Nigeria, Ontario, Pakistan, Portugal, Quebec, Romania, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, Turkey, United Kingdom and the United States.