IOSCO updates its liquidity risk management recommendations

On 26 May 2025, IOSCO published:

• a Final Report on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (the Revised Recommendations); and

• a Final Report on Guidance for Open-ended Funds for the Effective Implementation of the Recommendations for Liquidity Risk Management (the Implementation Guidance), which sets out guidance on technical elements of the Revised Recommendations.

Together, these will supersede IOSCO's 2018 Liquidity Recommendations and December 2023 ADT Guidance.

What's the background to the Revised Recommendations?

On 11 November 2024, IOSCO published Consultation Reports on the Revised Recommendations and the Implementation Guidance.

The consultations were open to 11 February 2025 and, having taken into account feedback received as well as the Financial Stability Board's December 2023 Revised Policy Recommendations, IOSCO has adopted the following positions in the Revised Recommendations:

• it has made minor clarifications to the definitions of common components of open-ended funds (OEF) structure;
• it maintains its position that category 2 funds (i.e, OEFs that invest mainly in "less liquid" assets) are expected to increasingly use Anti-Dilution Tools (ADTs) as part of their day-to-day liquidity management (unless such LMTs not being used is clearly justified as specified in Revised Recommendation 7);
• it has revised its explanatory text to include "soft closures," and "deferral of redemptions" as additional potential LMTs;
• it has clarified its intention not to impose additional responsibilities on depositaries beyond those set out in existing regulatory frameworks;
• it has revised explanatory text for Recommendations 16 and 17 on disclosures to enhance transparency when responsible entities activate quantity-based LMTs or other liquidity management measures; and
• it has confirmed that ETFs and MMFs are outside the scope of the Final Report.

What's been changed?

While the majority of the Revised Recommendations are described as having either 'Only editorial changes' or 'No major changes' when compared with their 2018 predecessors, significant changes have been made to a number of Revised Recommendations:

• Revised Recommendation 3:

  This incorporates the categorisation approach, by which a responsible entity should ensure that the investment strategy of an OEF and the liquidity of its assets are consistent with the terms and conditions which govern fund unit redemptions, both when the fund is being designed and on an ongoing basis.

  These changes are made with reference to Revised FSB Recommendation 3.

• Revised Recommendation 6:

  The Revised Recommendation underlines that, for each OEF which it manages, a responsible entity should consider and implement a broad set of anti-dilution LMTs, quantity-based LMTs and other liquidity management measures (to the extent allowed by local law and regulation), in both normal and stressed market conditions as part of robust liquidity management practices.

• Revised Recommendation 7:

  This now recommends that a responsible entity should consider and use anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in each OEF that it manages.

  For investors which are either subscribing or redeeming, these tools should impose the implicit and explicit subscription and redemption costs, including any significant market impact of asset sales to meet those redemptions.

• Revised Recommendations 6 and 17:

  Changes made to these Revised Recommendations reflect observations on quantity-based LMTs and other liquidity management measures - more detailed guidance is provided in the Implementation Guidance.

Next steps

IOSCO will review member jurisdictions' implementation of the Revised Liquidity Recommendations and the Implementation Guidance, starting with a stocktake, to be completed by the end of 2026

This will be coordinated with the FSB's stocktake of measures adopted and implementation of its own Revised Recommendations.

IOSCO will then assess whether risks to financial stability have been adequately addressed, whether existing tools need to be refined or whether additional tools need to be developed.