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Question for Treasury

UIN HL3260, tabled on 20 October 2021

To ask Her Majesty's Government what steps they are taking to impose stronger investor protections where illiquid assets are held in funds.

Answered on

1 November 2021

The government works closely with the financial services regulators to ensure appropriate investor protections are in place where illiquid assets are held in funds.

In September 2020 the Financial Conduct Authority (FCA) introduced rules to make liquidity management in certain funds more transparent and predictable. These include the requirement that some funds suspend if there’s material uncertainty regarding the value of 20% of the fund’s assets. In August 2020, the FCA consulted on introducing notice periods for open ended property funds, in order to align the funds redemption terms with the liquidity of the underlying assets.

In July 2021, the Bank and the FCA concluded a joint review of open-ended funds which outlined a possible framework for taking forward improvements to certain liquidity management tools. These conclusions will feed into ongoing international work with other regulators.

The government also supports the work of the FCA to develop the Long-Term Asset Fund (LTAF), an open-ended vehicle designed to hold illiquid assets. The LTAF rules embed longer redemption periods, high levels of disclosure, and strong liquidity management and governance features in order to provide sufficient investor protection. The FCA consulted on the LTAF between May and June this year and published the final rules for the new structure on 25 October.

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