FCA new rules for open-ended funds investing in inherently illiquid assets

The FCA’s new rules require that investors are provided with clear and prominent information on liquidity risks, and the circumstances in which access to their funds may be restricted. They place additional obligations on the managers of funds investing in inherently illiquid assets to maintain plans to manage liquidity risk. The new rules also include:

• Introducing a new category of ‘funds investing in inherently illiquid assets’ (FIIA). Funds that fall into this category will be subject to additional requirements, including increased disclosure of how liquidity is managed, standard risk warnings in financial promotions, enhanced depositary oversight, and a requirement to produce liquidity risk contingency plans. These requirements will not apply where a fund matches the dealing frequency of its shares to the liquidity of its assets.
• A requirement that NURSs investing in inherently illiquid assets must suspend dealing where the independent valuer determines there is material uncertainty regarding the value of more than 20% of the fund’s assets. Following feedback the FCA will, however, allow fund managers to continue to deal where they have agreed with the fund’s depositary that this is in the investors’ best interests.

The new rules come into effect on 30 September 2020.