We are consulting on proposals to reduce the potential for harm to retail investors in funds that hold illiquid assets, particularly under stressed market conditions. These measures will also support our market integrity objective and help address financial stability concerns.
Open-ended funds that invest in illiquid assets can encounter difficulties if many investors simultaneously try to withdraw their money at short notice. This happened following the result of the UK referendum on EU membership in June 2016, when a number of property funds had to suspend dealing temporarily.
We consider that suspensions and other liquidity management tools worked as they were intended to, and helped to prevent wider market disruption. The results of supervisory work carried out following the property fund suspensions and feedback to our Discussion Paper 17/1 confirmed that a major overhaul of the regulatory framework in this area was not needed. However, we consider that improvements should be made in the use of suspensions and other liquidity management tools, contingency planning, oversight arrangements and disclosure to retail clients.
Those with an interest in open-ended funds, in particular non-UCITS retail schemes (NURSs), that invest in illiquid assets, such as property, should read this paper. This includes fund managers, depositaries, ancillary service providers, intermediaries and investors. The proposals also have implications for those communicating financial promotions of funds investing mainly in illiquid assets to retail clients.
We are consulting on a package of measures that will require:
If successful, these measures should:
We will consider your feedback and expect to publish our final rules and guidance in a policy statement later in 2019.