Guidance on fund suspensions

Following the result of the EU referendum, we are aware that some asset managers are experiencing higher than normal levels of redemption requests from investors in their funds.

Fund managers have a duty to act in the best interests of all investors. Therefore they must consider how to ensure the on-going fair treatment of all investors in their funds in the context of the current market conditions.

Fund managers have a range of tools available to manage their funds through periods of market disruption or when specific events take place to ensure the best interests of all investors are safeguarded.

The FCA expects all fund managers to understand fully their duties and responsibilities, as well as the tools they have in relation to all of the funds they manage, which will largely depend on the terms set out in that fund’s prospectus and the instrument constituting the fund. Further, the FCA expects them to have a clear understanding of how and when such tools might be used.

It is the duty of the fund manager to ensure that assets are valued fairly and accurately and to ensure that any subscriptions or redemptions of units take place at a fair price. Failure to do so may lead to some investors gaining at the expense of other investors in the same fund.

If a fund has to dispose of underlying assets in order to meet an unusually high volume of redemption requests, the manager must ensure these disposals are carried out in a way that does not disadvantage investors who remain in the fund or are newly investing in it. 

In exceptional circumstances, fund managers should consider whether it would be in investors’ best interests to suspend dealing in a fund or range of funds.  We request that managers of authorised funds contact us in advance of any proposed suspension.

Where fund managers have chosen to temporarily suspend dealings in funds, they will need to consider when to resume dealings in the interest of investors. Funds holding a large proportion of assets that may be, in certain circumstances, illiquid or hard to value such as commercial property may consider that the suspension should be lifted and investors given the opportunity to redeem at a revised valuation of the units in the fund. This redemption price might reflect the price at which illiquid assets can be realised in a shorter than usual timeframe. In these circumstances, fund managers should ensure that:

  • the revised redemption price and the opportunity to cancel are clearly communicated to investors who have submitted a request to redeem their investment before or during the fund’s suspension;
  • this communication explains the options that are available to investors and includes details of how to cancel the redemption requests; and
  • investors are given sufficient time to make their decision and to seek appropriate advice. This timeframe should take into account the types of investor in the fund and whether communications to these investors need to take place through an intermediary.