The International Organization of Securities Commissions (IOSCO) will issue asset-manager standards by year-end that apply a light touch to liquidity risk management by national regulators, the group’s top official said.
The comments by IOSCO Secretary-General Paul Andrews were made as the Trump administration was separately releasing a report calling for a loosening of US liquidity risk management standards due to go into effect next year.
Andrews said IOSCO’s investor-protection guidance will be broad on liquidity issues such as how firms should meet redemption requests during market stress.
“The approach of leaving it up to the firms to manage their risk portfolio is the right place for it to be,” he told a Washington conference.*
“Is there a role for regulation in this?” Andrews added. “Obviously yes. But it can’t be a dictatorial approach or an overly prescriptive approach, at least from our point of view.”
He said that the variety of firms, funds and business models world-wide suggests the need for flexible recommendations applied to mutual funds, exchange traded funds, money market funds, hedge funds and private equity funds.
The year-end IOSCO standards will build on its 2013 liquidity risk-management guidance for national regulators and the fund industry.
IOSCO’s standards will be “fully consistent with the perspective” of the UK’s Financial Conduct Authority (FCA) on investor disclosure, clarity and costs, Andrews said.
Last June, an FCA asset management study found weak price competition in a number of industry sectors, lack of clarity on some fund objectives and concerns about fund performance reporting.
The UK agency plans to try to strengthen requirements on fund managers to act in investors’ best interests, support disclosure of a single fee to investors, and standardise cost disclosures to institutional investors, its report said.
Trump administration report
A US Treasury Department report has called on the US Securities and Exchange Commission (SEC) to delay a provision of its liquidity risk management rule due to go into effect in December 2018.
The SEC provision, which the report called "highly prescriptive," requires funds to classify each investment into one of four liquidity categories ranging from “highly liquid” to “illiquid.”
The SEC rule was enacted by the SEC during the Obama administration.
Reporting by Neil Boland, MLex.
*Sifma Annual Meeting 2017: The Capital Markets Conference; Washington, DC; Oct. 24, 2017.