Following similar action by the Canadian Securities Administrators (CSA), the U.K.’s Financial Conduct Authority (FCA) is undertaking its own consultation on reforms to ensure that fund managers are adequately managing liquidity.
In the wake of the pandemic, global policymakers have raised concerns about fund liquidity and the ability of investment funds to meet redemption demands, particularly during episodes of market stress.
Given these concerns, in May, the International Organization for Securities Commissions (IOSCO) updated its recommendations in this area, which set new international standards for fund liquidity risk management.
And, in late November, the CSA launched a consultation on proposed reforms to its rules around fund liquidity risk management in Canada.
Now, the FCA is also consulting on its own set of proposals that aim to make sure that fund managers have effective tools for managing liquidity, and guarding against dilution for investors that continue to hold a fund — reducing incentives for investors to rush for the exits when market stress arises.
Indeed, in the U.K., even before the pandemic regulators flagged concerns with liquidity mismatch between funds’ portfolio assets and their redemption terms.
In its consultation launched Tuesday, the FCA noted that while funds are already managing liquidity risk under the existing framework, the regulators believe more can be done to “improve liquidity risk management, to reflect the fundamental role it plays in the management of open-ended funds.”
“These proposals will also make sure [fund managers,] particularly those with portfolios with a high level of less liquid assets, have robust liquidity risk management processes in place,” it said.
“Effective liquidity risk management, particularly for open-ended funds … is vital to safeguard investors’ interests,” the FCA said in its paper. “It also supports orderly markets by reducing the likelihood of disorderly selling of assets that might impact other funds with similar strategies or, in extreme cases, threaten financial stability.”
In a cost-benefit analysis, the FCA estimates that its proposals will cost fund managers £13.7 million over 10 years, while also generating positive indirect benefits, such as boosting investor confidence, strengthening trust in the industry, and supporting innovation and competition.
“Overall, we expect the proposals to deliver a net benefit through reducing the probability of individuals’ financial loss, making the distribution of costs more efficient, supporting orderly markets, and improving the resilience of U.K. funds,” the paper said.
The deadline for responding to the consultation is Feb. 23, 2026 (the CSA’s consultation runs until March 27).