it's actually an approach control function to separate the aircraft in this situation
Assuming you have separate APP RAD and ADI, otherwise you are looking at procedural.
Inbound reports established on LLZ so you know where he is and then clear for approach to report the OM or 4ILS/D.
You advise the inbound that you have circuit traffic holding at .....
AND you can see the traffic at all times.
If you cannot maintain visual contact with the circuit traffic (marginal WX) then you hold IFR, ground the VFR circuit traffic and then allow the IFR to make an approach.
Where you have separate APP RAD and ADI then you still must tell the inbound IFR that you have circuiting traffic and what you are doing with it to ensure separation.
approach controller is delegating the responsibility to use the reduced separation to the aerodrome controller
Remember IFR from IFR
and IFR from VFR
VFR gets traffic info.