Liquidity Risk Management (LRM) In Focus: Key Issues For Stakeholders To Evaluate Under The CSA’s Proposed Framework

The comment period on the new liquidity risk management amendments (the “Proposed Amendments”) proposed by the Canadian Securities Administrators (“CSA”) closes March 27, 2026.

The Proposed Amendments represent a material shift from guidance-based expectations to enforceable rule requirements.  Importantly, the Proposed Amendments, if adopted as proposed, would introduce comprehensive, codified liquidity risk management (“LRM”) obligations for all investment funds — including private funds such as pooled funds and non-reporting issuer funds.  Concurrent with the Proposed Amendments, CSA published a consultation paper (the “Consultation Paper”) seeking feedback on potential further changes to the liquidity risk management regulatory framework in Canada.

Stakeholders — particularly investment funds and their managers — should carefully assess the operational, governance and reporting implications and consider whether to submit comments before the consultation deadline.

Background and Purpose

Released on November 27, 2025, the Proposed Amendments would embed into binding rules key elements of CSA Staff Notice 81-333 — Guidance on Effective Liquidity Risk Management for Investment Funds.  The Proposed Amendments would be effected by way of amendments to National Instrument 81-102 – Investment Funds and its companion policy.

The CSA’s stated objective is to strengthen investor protection and market resiliency, in part responding to an assessment by the International Organization of Securities Commissions (IOSCO) that found Canada “broadly consistent”, but not “fully consistent”, with international LRM standards due to reliance on guidance rather than enforceable requirements.

Some areas of consideration for stakeholders are the following elements set out in the Proposed Amendments and Consultation Paper:

• Expand prescriptive LRM obligations to all investment funds, including pooled funds and exempt market funds;
• Formalize governance requirements around liquidity oversight;
• Introduce potential new disclosure and confidential regulatory reporting; and
• Signal a possible expansion of permitted liquidity management tools (“LMTs”).

For many managers, particularly those overseeing private funds, these proposals may represent a meaningful compliance expansion.

Key Areas Stakeholders to Consider in Providing Comments

1. Formalized and Ongoing LRM Framework Requirements: The proposed amendments would require every investment fund, including private funds, to establish, maintain and apply a documented liquidity risk management framework tailored to its specific liquidity profile, redemption features, investor base and portfolio composition. Managers should assess whether existing policies and procedures are sufficiently robust and formalized to meet the proposed prescriptive requirements, or whether additional documentation, systems, personnel or third-party support would be required. Managers may also wish to evaluate how liquidity assessments will be conducted for less transparent or thinly traded assets, how lifecycle monitoring will be maintained, and whether the proposed expectations appropriately reflect differences in fund size, strategy and complexity. For newer or smaller managers in particular, the requirement to design and continuously maintain a formal LRM framework may have meaningful operational and cost implications.

2. Operational Requirements and Systems Implications: The proposed operational requirements, including liquidity mismatch assessments for new funds, the establishment of liquidity thresholds, ongoing monitoring using qualitative and quantitative metrics, quarterly stress testing (or more frequent testing in stressed conditions), pre-trade liquidity impact assessments and documented contingency planning, could require significant enhancements to compliance infrastructure. Managers should consider whether current data systems and portfolio management processes can support these obligations, particularly for funds investing in private, structured or less liquid assets. Managers may also wish to evaluate the feasibility and proportionality of quarterly stress testing across different fund types, the anticipated compliance costs of implementing new monitoring tools, and whether a phased implementation period would be appropriate. In some cases, technological upgrades or expanded compliance resources may be necessary to operationalize the proposed framework effectively.

3. Governance and Oversight Structure: The governance model contemplated by the CSA would require either a designated LRM supervisor, who must be the chief compliance officer (“CCO”) of the investment fund manager or someone who reports directly to the CCO, or the establishment of an LRM committee that includes the CCO (or someone reporting directly to the CCO) and meets at least quarterly. Stakeholders should assess how this CCO-centric structure interacts with existing governance frameworks and how liquidity risk management is currently conducted, and whether role clarity or resource constraints may arise. Managers may wish to consider whether the proposed model appropriately accommodates different organizational structures, and whether alternative oversight models should be permitted. The proposals may also raise questions about expertise requirements, workload allocation and documentation standards for committees charged with LRM oversight.

Broader Consultation Topics: Strategic Issues for Consideration

In addition to the Proposed Amendments, the CSA seek input on several forward-looking policy questions that could significantly alter the liquidity toolkit available to Canadian funds.

1. Expanding LMTs: The CSA is consulting on whether to permit or require additional LMTs, including swing pricing, redemption gates, side pockets, and expanded borrowing limits during stress periods. Stakeholders may wish to consider:

• Whether certain liquidity management tools should be optional, mandatory or restricted to particular categories of funds
• The interaction between these tools and investor expectations, fund terms and disclosure practices
• The potential competitive impact of mandatory adoption relative to other jurisdictions

2. Proposed Liquidity Classification / Bucketing Framework: The CSA are considering categorizing portfolio assets into four liquidity buckets based on disposal and settlement timeframes (three to five business days with “illiquid” defined as beyond five business days). Managers investing in alternatives or cross-border assets may wish to assess alignment challenges. Stakeholders may wish to consider:

• The appropriateness of a five-business-day threshold for defining “illiquid” assets in Canadian markets
• Whether liquidity assessments should differentiate between normal and stressed market conditions
• The classification methodology applicable to private, structured or less transparent instruments
• The operational and systems implications for funds that do not currently categorize assets using a liquidity bucketing framework
• The appropriateness of the four proposed liquidity buckets

3. Confidential Reporting and Public Disclosure: The CSA are considering new requirements for confidential liquidity reporting (including for private funds), prompt reporting of specified liquidity events, and enhanced public disclosure of portfolio liquidity profiles and material liquidity issues. For private fund managers, confidential regulatory reporting may represent a notable expansion of the current oversight regime. Stakeholders may wish to consider:

• Regulatory burden and confidentiality concerns for pooled funds
• Thresholds for event reporting
• Market sensitivity of public liquidity disclosures
• Alignment with international practices

Key Takeaways for Canadian Market Participants

Given the breadth of the proposals and the potential impact, stakeholders should:

1. Conduct an internal gap analysis against existing LRM practices;
2. Assess cost, governance and systems implications;
3. Identify areas where proportionally, transition periods or clarifications may be warranted; and
4. Consider whether to submit written comments before the deadline.

Please reach out to the authors of this bulletin or your regular McMillan contact if you have any questions on the Proposed Amendments or Consultation Paper.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025