ALFI responds to the IOSCO consultation on the Revised Recommendations for liquidity risk management

On 11 November 2024, the IOSCO launched a Consultation on the Revised Recommendations for Liquidity Risk Management for Collective Investment Scheme.

Originally published in 2018, IOSCO’s Liquidity Risk Management Recommendations were published in response to the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities that aimed to address structural vulnerabilities from liquidity mismatch in open-ended funds. The Revised LRM Recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (“Revised FSB Recommendations”) from December 2023, as well as recent market events.

The key proposed revisions to the LRM Recommendations correspond to the targeted revisions from the Revised FSB Recommendations and can be grouped into four main areas:

• Categorizing open-ended funds (OEFs) based on the liquidity of their assets;
• Encouraging investment managers to implement a broad set of liquidity management tools (LMTs) and other liquidity management measures;
• Emphasizing the importance of anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs;
• Incorporating new guidance on quantity-based LMTs and other liquidity management measures.

Among others, ALFI response highlights:

• The limitations of a categorical approach;
• The importance of acknowledging for the non-exhaustiveness of the list of tools and measures proposed by IOSCO;
• The relevance of a principle-based approach governing the use of LMTs;
• The key distinction between ex-post review and back-testing; and
• The main considerations for appropriate ex-post and ex-ante disclosures.

View the ALFI response.