Updated expectations on liquidity risk management

Under the new LRM guidance which replaces the 2020 version, the FMA recommends that fund managers have a range of appropriate liquidity management tools (LMTs) for specific circumstances, including where redemption obligations can’t be met in the ordinary course of business.

The guidance says in extreme circumstances managers, including KiwiSaver providers, should be able to temporarily suspend redemptions and this must be disclosed to investors through the PDS or other material information.

For voluntary transfers between KiwiSaver providers, managers of schemes involved in the transfer may agree to any longer period than the default 10 working days as expressly provided in section 56(4) of the KiwiSaver Act 2006.

The guidance says, “We expect managers, exercising care, diligence and skill, would make such agreements in good faith to appropriately manage fund liquidity in situations such as extreme market conditions or scheme-specific liquidity issues.”