FCA consults on illiquid open-ended retail funds

08 October 2018

Today the FCA has launched a consultation paper (CP 18/27) on open-ended retail funds investing in illiquid assets.


After the Brexit vote in 2016, there were significant investor outflows from open-ended real estate funds resulting in a number of fund suspensions. The FCA subsequently issued a discussion paper (17/1) but concluded that no regulatory changes were needed as appropriate liquidity management tools were used. However, the FCA is now looking at how to prevent “runs on funds”, which ultimately affect the value of the underlying assets as they often require fire sales of assets to meet redemption requests, and also how to help investors understand better the restrictions on the funds in which they invest so as to increase investor confidence. Therefore, the FCA proposes the following requirements, which for example will be relevant to Non-UCITS retail schemes (NURS) investing in real estate and their fund managers, depositaries and investors:

  • suspension of trading for an AIF when the independent valuer expresses uncertainty about the property value;
  • AIFMs need to have contingency plans on how to deal with liquidity issues;
  • oversight by depositaries of the liquidity management process; and
  • disclosures of liquidity risk and liquidity management tools, including when they may be used and what impact they may have on investors.


Responses are due before 25 January 2019.

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