In an effort to protect against a liquidity crisis in the investment fund sector, the Canadian Securities Administrators (CSA) are proposing rule changes that would impose new requirements on fund managers to ensure that they’re adequately dealing with liquidity risk, and can handle investor redemption demands.
The proposals, which are out for a 120-day comment period (to March 27, 2026), include a requirement for investment funds to establish a liquidity risk management framework, set certain operational requirements for that framework, and adopt oversight requirements for it too.
In a notice Thursday, the CSA said its proposals aim to codify guidance in this area that was issued back in 2020, imposing more specific requirements on investment funds. It also aims to reflect recent efforts to address fund liquidity at the international level in the wake of the market disruption that accompanied the pandemic and other episodes of market stress that have highlighted liquidity concerns.
The goal of these changes is “to strengthen the [liquidity risk management] framework of all investment funds, in line with the CSA’s objectives of protecting investors, promoting fair, efficient and transparent markets, and reducing systemic risk,” the notice said.
In particular, requiring funds to have strong requirements in this area will ensure that they can manage portfolio liquidity to meet investor redemption demands, without harming investors that stay invested — reducing the risk of funds facing liquidity crises that could impact the entire financial system.
“A robust liquidity risk management framework is essential to protect investors and maintain confidence in our capital markets,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC) in a release.
“These proposed changes will help ensure that investment funds are better equipped to manage liquidity under various market conditions, safeguarding both redeeming and remaining investors,” he added.
In an accompanying cost-benefit analysis, the regulators estimated that the proposals would cost fund managers a combined $5.5 million in upfront costs and $1.9 million in annual ongoing costs.
Alongside the proposed rule changes, the CSA also published a consultation paper that explores other potential regulatory reforms in this area, including the use of certain liquidity tools, classifying portfolio assets, and disclosures and data on liquidity. Any actual rule changes that result from the consultation would have to go through the typical rulemaking and public comment process.