The New Zealand Financial Market Authority (FMA) has published a report on Managed Investment Schemes (MIS). This report contains recommendations on liquidity stress testing frameworks, processes and procedures, following the August 2020 self-assessment survey completed by regulated entities for a two-year period ending 31 December 2019.
Overview
In August 2020, the FMA e issued a survey to Managed Investment Scheme managers (MIS managers), asking them to self-assess their liquidity risk management capabilities.
The FMA found that MIS managers in general appear to have a positive view of their liquidity risk management capabilities, including stress testing. The FMA consider this overly optimistic, based on the responses to detailed questions about their capabilities, and also considering the expectations set out in the liquidity risk management good practice guide published in April 2020. There were exceptions, but even the stronger performers showed some significant gaps across particular areas of capability, e.g. frequency of stress testing, use of available liquidity management tools (LMTs) and metrics.
The FMA have provided that MIS managers should try to avoid becoming complacent about their own capabilities. MIS boards/oversight bodies need to maintain effective oversight and provide constructive challenge. This includes forming their own view of the liquidity risk management capabilities, maturity and culture of their entity, and assessing the extent to which these enable the MIS to operate consistently within its defined risk appetite and policy settings. This will allow them to identify any desirable changes, and ensure management takes steps to address those changes.
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