European Insurance and Occupational Pensions Authority issues opinion setting supervisory expectations for IORP liquidity risk management

The European Insurance and Occupational Pensions Authority (EIOPA) has issued an Opinion setting supervisory expectations for how national authorities should oversee liquidity risk management at Institutions for Occupational Retirement Provision (IORPs), aiming to strengthen IORP and financial system stability and improve protection of pension scheme members and beneficiaries. The Opinion highlights that liquidity strains can stem from falling inflows (such as contributions and investment income) or rising outflows (including early withdrawals), with margin and collateral calls on derivatives identified as a particular source of risk where hedging positions can trigger rapid cash demands following adverse market moves. National supervisors are expected to monitor and assess IORPs’ liquidity risk exposures and their capacity to manage them, and to require IORPs with material liquidity risk to embed liquidity risk within their overall risk management system, including stress testing cash inflows and outflows and maintaining sufficient liquid asset buffers to cover unforeseen shortfalls. Given heterogeneity across Member States, supervisors are expected to apply the expectations in a risk-based and proportionate manner. The Opinion applies immediately and is addressed to national competent authorities under the EIOPA Regulation. It is accompanied by an impact assessment and a feedback statement reflecting a public consultation that ran from 26 September to 20 December 2024.