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The FCA's long-awaited Policy Statement on illiquid assets and open-ended funds may have wider implications

Yesterday the Financial Conduct Authority (FCA) published its Policy Statement on illiquid assets and open-ended funds. This Policy Statement includes rules applicable to non-UCITS retail schemes (NURS) that will apply from 30 September 2020.

As expected, most of the proposals in the FCA’s Consultation Paper in October 2018 on this topic have been adopted, except for two of the proposals:

  1. the requirement for a manager of a fund investing in inherently illiquid assets to add an "identifier" to the name of the fund; and 
  2. the requirement to limit the accumulation of large cash buffers within NURS funds. 

The FCA has also introduced an option for fund managers not to suspend dealing in fund units where there is material uncertainty regarding the value of 20% of the scheme property if the depositary agrees that this is in investors’ best interests. 

These amendments are generally good news for fund managers. In particular they introduce more flexibility around suspensions than an automatic trigger, which could lead to more frequent and unnecessary suspensions.

Wider implications

The key point to note from this Policy Statement is the implications for other types of funds, including UCITS. Following the suspension of the LF Woodford Equity Income Fund earlier this year, the FCA is concerned that similar issues can arise with a UCITS fund if it invests in less liquid assets. In particular, where open-ended funds invest in less liquid assets, they and their investors need to be clear about the extent of any mismatch between the ability to liquidate assets and redemption terms offered to investors, and how this will be managed.

Watch this space as it is likely that the FCA will publish a Consultation Paper that relates more widely to other types of open-ended funds and extends existing investor protections.

The WEIF suspension shows that liquidity considerations are not confined to those open-ended funds with exposure to property or other immovables. Liquidity issues can extend to other open-ended funds, including UCITS, where they have holdings of less liquid assets.


financial services, investment management, regulated funds and ucits, institutional asset managers