To ask Her Majesty's Government what plans they have to issue guidance to (1) unit trust, and (2) open-ended investment company, managers to limit fund redemptions instead of obliging fund managers to be forced sellers of shares and bonds.
To ask Her Majesty's Government whether they have issued any guidance (1) to fund managers on statements related to restricting redemptions of investments of open-ended funds, and (2) on whether fund managers may issue statements that fund investors will never be gated.
The government is committed to ensuring that the UK has a robust framework for regulating financial services and that consumers are treated fairly. There are a range of existing rules in this area and there is work underway to address ‘liquidity mismatch’ in open-ended funds and to protect consumers.
Financial services firms are required to treat customers fairly under rules set by the Financial Conduct Authority (FCA), and the FCA is responsible for overseeing the conduct standards of financial services firms. There are already a number of rules on eligible assets, which aim to protect consumers. Such rules apply to both types of fund that can be sold to retail investors – UCITS and non-UCITS retail schemes. Additionally, in September, the FCA published a policy response to their consultation on illiquid assets and open-ended funds. This outlined new rules for certain structures that invest in illiquid assets, which will come into effect in September 2020. The new rules will include a requirement that non-UCITS retail schemes 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. The FCA is also currently working with the Bank of England’s Financial Policy Committee to assess how funds’ redemption terms might be better aligned with the liquidity of their assets.
Fund suspensions can be a necessary safety feature which ensures that a fund is not forced to sell assets at a distressed market price, which would lead to further losses for end investors in the fund. FCA rules permit suspensions, which may last for as long as is necessary to protect the interests of the remaining investors in the fund.