Following the turbulence in the gilts market in September, on November 30, 2022, the Regulator published a guidance statement urging scheme trustees who use liability-driven investment (LDI) to maintain an “appropriate level of resilience” in leveraged arrangements to better withstand a fast and significant rise in bond yields. 

The Regulator has also welcomed a statement regarding the resilience of LDI funds made by the Central Bank of Ireland (CBI — Ireland) and the Commission de Surveillance du Secteur Financier (CSSF — Luxembourg), known collectively as National Competent Authorities (NCAs).

The Regulator acknowledges the NCA's expectation that schemes maintain "a specific level of liquidity buffer along with the reduced risk profile, given the recent higher level of market volatility and future uncertainty, and the current geo-political landscape".  The FCA has also responded to the NCA's statement.
  
The Regulator’s guidance states that where schemes are not able to hold sufficient liquidity, or are unwilling to commit to that level of liquidity, they should "consider their level of hedging with their advisers to ensure they have the right balance of funding, hedging and liquidity". If schemes decide to adopt an investment strategy with a reduced hedge, this should be done in a "predetermined manner by the trustee, having taken appropriate advice."
  
The Regulator sets out the steps trustees should take if they depart from the liquidity buffer set out by the NCAs. This includes carrying out a risk assessment of how the scheme will respond to stressed market events and implementing a plan for bringing the scheme to higher levels of resilience. The guidance also contains a list of practical steps trustees should take to improve governance processes around LDIs so that they can react quickly in response to future events. 
  
The Regulator's guidance follows the statement it issued last month on LDIs, and it plans to issue an update on LDIs in its annual funding statement in April 2023, and further guidance and statements as necessary.