Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds

The present document represents the Revised FSB Recommendations as a response to the potential liquidity mismatch in OEFs. These recommendations supersede Section 2 of the initial 2017 FSB Recommendations and are part of the FSB’s NBFI work program, to be considered alongside the IOSCO Guidance on Anti-Dilution LMTs.
As a reminder, the 2017 FSB Recommendations aimed to enhance regulatory reporting, promote liquidity management, expand the use of LMTs, and advocate for stress testing in OEFs. IOSCO operationalized these recommendations in 2018. In 2022, the FSB assessed their effectiveness, leading to a consultation report in July 2023. The final report, shaped by public feedback, presents the Revised FSB Recommendations, emphasizing collaboration with IOSCO.
The revised recommendations, coupled with new IOSCO guidance, seek a substantial improvement in OEF liquidity management. They consist of nine key recommendations:
1. Authorities should collect and enhance information on OEF liquidity profiles for better financial stability assessment.
2. Authorities should review investor disclosure requirements, enhancing them based on liquidity risk and LMT availability.
3. To minimize structural liquidity mismatches, authorities should guide funds to align investment strategies with redemption terms.
4. Authorities should ensure a diverse set of liquidity management tools, reducing barriers to their use in normal and stressed conditions.
5. Authorities should mandate anti-dilution tools for OEF managers to mitigate first-mover advantage, ensuring fair allocation of liquidity costs.
6. Stress testing at the individual OEF level should be required, with guidance on its execution to manage liquidity risk.
7. Authorities should promote transparent decision-making processes for quantity-based liquidity tools, especially in stressed markets.
8. While asset managers bear primary responsibility, authorities should guide their use, particularly in stressed conditions.
9. Relevant authorities should consider system-wide stress testing to evaluate collective selling effects on financial markets and stability.
The FSB and IOSCO plan a review by 2026, assessing member jurisdictions‘ progress in implementing recommendations. A subsequent assessment in 2028 will evaluate the effectiveness of measures, informing potential refinements or additional tools based on identified risks to financial stability.