On 26 May 2025, following a period of consultation, IOSCO published its Final Report on "Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (CIS)" (Revised Recommendations), along with its accompanying Final Report on "Guidance for Open-Ended Funds for the Effective Implementation of the Recommendations for Liquidity Risk Management" (Implementation Guidance).
Together, the Revised Recommendations and Implementation Guidance replace the previous IOSCO 2018 framework and incorporate the FSB's December 2023 "Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds".
Key changes and industry reaction
The updated IOSCO framework aims to strengthen liquidity risk practices across the full fund lifecycle. The Revised Recommendations include 17 recommendations across six key areas: product design, liquidity management tools and measures, day-to-day liquidity management practices, stress testing, governance, and disclosures to investors and authorities, while the Implementation Guidance sets out technical guidance on how to implement the Revised Recommendations.
Key changes include IOSCO's endorsement of a categorisation framework that classifies funds in one of four liquidity profiles, ranging from funds that 'invest mainly in liquid assets' to 'funds that allocate a significant proportion of their assets in illiquid assets'. However, this model has drawn industry criticism for potentially oversimplifying liquidity dynamics and downplaying the impact of investor behaviour and market conditions. IOSCO also now refers to soft closures and deferred redemptions as useful liquidity management tools and has made updates to clarify the definitions of common components of open-ended fund structures.
Upcoming FCA consultation
Looking ahead, IOSCO is aiming to conduct a stocktake by the end of 2026 to monitor adoption and implementation progress across member jurisdictions. In the UK, the Financial Conduct Authority has signalled, via its Regulatory Initiatives Grid, that it intends to consult in 2025 on amending the Collective Investment Schemes Sourcebook (COLL) to reflect both the IOSCO and FSB updates, and incorporate residual work on open-ended daily-dealt property funds. It is suggested this could have a material impact on UK authorised fund managers, particularly those with less liquid asset classes.
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