The Financial Conduct Authority (FCA) has proposed new rules requiring investors in funds concentrated in illiquid assets—such as property, infrastructure, and unlisted companies—to provide 90 days’ notice before withdrawing their money. The move aims to address liquidity mismatches in these funds, which have previously faced difficulties meeting redemption requests during periods of market stress.
The FCA’s announcement comes after a series of incidents where open-ended funds with hard-to-sell assets experienced sudden investor runs, forcing managers into distressed sales at discounted prices or suspensions of withdrawals altogether. Notable episodes include the suspension of property fund redemptions following the Brexit vote in 2016, disruptions at the onset of the COVID-19 pandemic in 2020, and the collapse of Neil Woodford’s £3.7 billion Equity Income fund in 2019, which suffered from illiquid holdings and investor withdrawals. These events highlighted the risks posed by funds offering daily or frequent liquidity while holding assets that require extended periods to sell.
Under the FCA’s proposed reforms, funds with a majority of their portfolio held in inherently illiquid investments would no longer be permitted to offer daily redemption options. Additionally, dealing days for redemptions would be limited to no more than once a month. The regulator said these changes would help funds manage withdrawals in a more orderly fashion, reducing the likelihood of forced asset disposals at depressed prices and limiting the need to suspend redemptions.
Michelle Beck, director of markets at the FCA, emphasized the importance of clarifying the nature of such funds for investors. “Funds should be clear about whether they offer quick access or are built for longer-term investments like property,” she said, noting that the new rules would increase market confidence. The FCA estimates that approximately 17 funds, with a combined net asset value of around £7.22 billion, would be affected by the proposals.
The regulator has opened a consultation period on the proposed changes until December 11 and plans to give existing funds two years to comply, with a minimum of one year’s notice to investors before implementation. The FCA also intends to align the UK’s regulations with international standards set by bodies such as the International Organisation of Securities Commissions and the Financial Stability Board.
Industry responses have been generally supportive, with groups like the Investment Association welcoming the move, particularly adjustments that would allow Self-Invested Personal Pensions to continue investing in such funds. However, previous attempts to introduce notice periods—ranging from 90 to 180 days—were paused due to industry resistance and ongoing international regulatory developments.
The FCA underscored that rushed withdrawals can harm remaining investors and destabilize markets, highlighting the importance of measures that provide fund managers sufficient time to liquidate assets without resorting to suspensions or fire sales. The latest proposals seek to balance investor protection with the realities of managing illiquid investments, offering clearer guidance and protections for retail investors increasingly exposed to private market funds.