- The Financial Conduct Authority proposes a minimum 90-day notice period for withdrawals from investment funds holding illiquid assets, including property, infrastructure and private equity.
- Under the proposed rules, funds could process redemptions only once a month, with the combined notice and settlement period capped at 185 days to reduce liquidity risks during market stress.
- The consultation follows heightened scrutiny of fund liquidity after the Woodford Equity Income Fund suspended withdrawals in 2019, trapping approximately £3.7 bn in assets.
The UK’s Financial Conduct Authority (FCA) has proposed introducing a minimum 90-day notice period for investors seeking to withdraw money from investment funds holding illiquid assets, including infrastructure, property and private equity.
The proposal, outlined in the regulator’s latest consultation paper, would restrict the ability of affected funds to offer daily withdrawals without advance notice.
The FCA aims to reduce liquidity mismatches that can leave investment managers unable to meet redemption requests during periods of financial market stress.
Under the proposed framework, funds would be permitted to process redemptions no more than once a month. The combined withdrawal notice and settlement period would also be limited to 185 days, establishing a maximum timeframe for investors to receive their money.
The measures are intended to address a longstanding vulnerability in open-ended investment structures, where investors can request withdrawals more frequently than the underlying assets can reasonably be sold.
During periods of heightened volatility, a surge in redemption requests can force fund managers to liquidate their most readily marketable holdings. If available cash and liquid assets prove insufficient, managers may have to suspend withdrawals entirely.
Such suspensions can disproportionately affect investors who remain in the fund after others have redeemed their holdings, potentially leaving them exposed to a portfolio increasingly concentrated in difficult-to-sell investments.
The regulator’s proposals follow years of scrutiny of liquidity management in investment funds, particularly after the collapse of Neil Woodford’s Woodford Equity Income Fund (WEIF).
Michelle Beck, director, markets, at the FCA, said: “Funds should be clear about whether they offer quick access or are built for longer-term investments like property.”
Once among the UK’s largest and most successful investment funds, WEIF suspended investor withdrawals in June 2019 after a prolonged deterioration in its liquidity position.
The suspension left investors unable to access approximately £3.7 bn in assets, marking one of the most prominent failures in the UK investment management industry.
The fund’s assets under management had declined from more than £10.1 bn in May 2017 to approximately £3.7 bn shortly before withdrawals were halted.
The FCA subsequently concluded that Woodford had made “unreasonable and inappropriate investment decisions” between July 2018 and June 2019, selling a disproportionate share of the fund’s more liquid investments while increasing exposure to assets that were harder to sell.
By the time the fund suspended redemptions, only 8% of its investments could be liquidated within seven days, despite the rules then in place requiring investors to be able to access their money within that period.
The Woodford case demonstrated how daily redemption arrangements can become unsustainable when a fund’s portfolio contains substantial holdings that cannot be sold quickly.
The FCA’s proposed notice requirements would seek to bring withdrawal terms more closely into line with the liquidity of underlying investments, reducing the likelihood that sudden redemption demands force asset sales or fund suspensions.
