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Publication Date: December 20, 2023 Document Size PDF: 649 KB
Document History Summary:
Consultation Phase
Workshop Engagement
Public Feedback Incorporation
Overview of Public Responses
Final Report Release
The pivotal structural risk emanating from asset management activities is the possibility of a liquidity mismatch between fund assets' liquidity and dly redemption requests in open-ed funds OEFs. In 2017, the Financial Stability Board's FSB recommations med to:
Enhance regulatory reporting and public disclosures to facilitate liquidity risk evaluation for OEFs.
Foster liquidity management practices during fund setup and ongoing operation periods.
Increase accessibility of Liquidity Management Tools LMTs, emphasizing their use in challenging market scenarios.
Promote stress testing at the fund level and system-wide.
In July 2023, IOSCO operationalized many of these FSB recommations through its guidelines for liquidity risk management in collective investment schemes. To assess effectiveness post implementation, an FSB evaluation was conducted in collaboration with IOSCO. Identifying areas needing improvement, both organizations agreed on additional analytical studies and policymaking actions.
Subsequently, the FSB published a consultation document detling potential revisions to its 2017 Policy Recommations specifically targeting liquidity mismatch risks in open-ed funds OEFs. The final report integrates comments from public consultations and presents revised policy recommations that supersede Section 2 of the original FSB guidelines on structural vulnerabilities from asset management activities.
These updated recommations form part of the ongoing work by the FSB to enhance non-bank financial intermediation resilience. They are designed in conjunction with IOSCO's guidance on Anti-Dilution LMTs, ming for a significant improvement over existing practices in managing liquidity risk by OEF managers.
Key Aspects of the Revised Recommations:
Strengthened Regulatory Reporting and Public Disclosures: Enhanced mechanis ensure more comprehensive data collection and transparency regarding fund liquidity management.
Promoted Fund Design and Management Practices: Improved guidelines on incorporating robust liquidity management practices during the initial setup stage and continuous operational periods of OEFs.
Enhanced Accessibility and Utilization of LMTs: Recommations for broader avlability of and strategic use of LMTs, particularly in times of market stress, are reinforced.
Systemic Stress Testing Enhancement: Emphasis on more rigorous fund-level and system-wide stress testing to better anticipate and mitigate potential liquidity risks.
The Revised Policy Recommations m to establish a more robust framework for managing liquidity risk within OEFs compared to current practices. The goal is to ensure that these revised guidelines, when combined with IOSCO's updated guidance on Anti-Dilution LMTs, significantly strengthen the liquidity management capabilities of open-ed fund managers.
Related Information:
Enhancing Resilience of Non-Bank Financial Intermediation: Progress Report
Addressing Structural Vulnerabilities from Liquidity Mismatch in Open-ed Funds - Revisions to the FSB’s 2017 Policy Recommations: Consultation report
Assessment of the Effectiveness of the FSB’s 2017 Recommations on Liquidity Mismatch in Open-ed Funds
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Revised Policy Recommendations for Open Ended Funds Mitigating Liquidity Mismatch Vulnerabilities FSB and IOSCO Collaborative Efforts Structural Risk Management in Asset Allocation Strengthened Regulatory Reporting Mechanisms Enhanced LMTs Accessibility Strategies