FCA consultation on rules for open-ended funds holding illiquid assets

The FCA is consulting on the introduction of rules to address issues that could arise where open-ended funds with illiquid asset holdings encounter stressed conditions.  Following the outcome of the Brexit referendum in June 2016, a number of such funds had to cease trading for a period of time, following a rush by investors to withdraw their funds at short notice.

The FCA’s rules would require:

  • the suspension of trading in a fund when the independent valuer expresses uncertainty about the value of ‘immovables’, such as commercial property, that account for a significant part of the fund’s assets;
  • contingency plans in case of a liquidity risk crystallising for funds that are mostly invested in illiquid assets; and
  • depositaries to oversee the liquidity management process for such fund.s

The consultation closes on 31 January 2019, and the FCA expects to publish a Policy Statement with final rules next year.