FRANKFURT (Reuters) - The Financial Stability Board, a global risk watchdog, plans to issue new liquidity recommendations for some investments funds after bouts of stress in recent years risked spreading over to the broader financial sector, the head of the FSB said on Thursday.
"Looking ahead, we will soon issue policy recommendations to address liquidity mismatches in open ended funds," Klaas Knot, the head of the FSB and the governor of the Dutch central bank said in a speech on Thursday.
Open-ended investment funds tend to sit on long term assets but their investors often have the option for short-term redemptions, creating a liquidity mismatch in periods of high stress.
Many open-ended funds, particularly those with higher exposures to credit risk, faced substantial redemption pressures in early 2020, when the financial system was struggling to cope with the impact of the pandemic.
FSB recommendations are not binding but serve as vital guidelines for local regulators and supervisors setting ground rules.