The Bank of England and FCA have issued a joint statement following a report by the FPC of the progress of their joint investigation into risks poses by liquidity mismatches of open-ended funds. The FPC noted a number of principles that would bolster consistency between the liquidity of a fund’s assets and its redemption terms.
In particular, the FPC identified action to be taken on a lack of a joined up approach to setting redemption periods and the liquidity of the underlying assessment: ie where investors are offered daily redemptions, despite the fact that the funds are invested in illiquid assets such as property. This creates the risk of encouraging a run on the fund, as those who ‘cash out’ first effectively get preferential treatment
The FCA and BoE’s review will consider how these principles may be addressed in an effective and proportionate way. The review is due to be concluded in 2020.