The proposed amendments to liquidity risk management for Canada’s investment funds do not address the core domestic liquidity risk identified by the Bank of Canada. Even if implemented, funds facing significant redemptions may still be forced to sell assets into stressed markets, with the same potential for correlated price dislocation.

Canadian Investment Fund Managers (IFMs) have demonstrated resilience through multiple periods of market stress. A principles-based framework that preserves IFM discretion is more appropriate and effective than the prescriptive approach taken by the Proposed Amendments.

Rather than imposing strict operational and classification requirements, the range of effective liquidity risk management tools available to IFMs should be expanded, without the IFM being required to adopt any particular liquidity tool. In particular, access to liquidity tools such as increased temporary borrowing capacity and the ability to suspend or gate redemptions in clearly defined stress scenarios should be available without prior regulatory approval. These tools would directly mitigate forced asset sales, reduce first-mover advantage, and better protect investors during periods of market stress.

Finally, a thorough and transparent cost benefit analysis has not been conducted. The available information suggests disproportionate costs without demonstrated benefit.

A full copy of CFFiM’s analysis is ici.

For all inquiries please contact CFFiM Public Affairs.