This Policy Statement summarises the feedback received to our consultation on illiquid assets and open-ended funds. It sets out our final rules relating to disclosure, liquidity management and suspension of dealing, as originally proposed in CP18/27.
We are seeking to reduce the potential for harm to investors in funds that hold inherently illiquid assets, such as property, particularly under stressed market conditions.
Open-ended funds that invest in inherently 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.
Our measures should:
Following the suspension of the LF Woodford Equity Income Fund, a UCITS fund, we have assessed whether there were any lessons that might be relevant to the issues covered in this Policy Statement. Further information on this can be found in the Policy Statement.
We are changing our Handbook in 3 broad areas:
The measures are focused on non-UCITS retail schemes (NURSs), as these are a key type of fund which can invest in inherently illiquid assets, and in which retail investors can invest.
Those with an interest in open-ended funds, in particular NURSs, that invest in inherently illiquid assets, such as property, should read this paper. This includes fund managers, depositaries, ancillary service providers, intermediaries and investors. The remedies also have implications for those communicating financial promotions of funds investing mainly in illiquid assets to retail clients.
If your firm is affected you need to comply with the rules and guidance introduced in the PS by 30 September 2020.
Fund managers and depositaries may wish to consider whether it would be in customers’ interests to adopt some of the measures, such as increased disclosure and improved liquidity management, ahead of the coming into force date, where these do not conflict with the rules applicable until that date.