Regulatory experts have questioned whether imposing more red tape would prevent panicking property fund investors from demanding their investments back.
Six fund groups halted trading in their property funds last week after seeing a surge in redemption requests from investors following the Brexit vote.
The suspensions came as it was revealed the Financial Conduct Authority (FCA) had warned the Bank of England that property funds could temporarily suspend investors’ money in the immediate aftermath of the UK’s vote to leave the EU.
Last week, Andrew Bailey, the chief executive of the FCA implied the redemption rules for open-ended property funds could be changed.
The regulator said it had launched an inquiry into the sector and revealed it had been in close contact with property funds for some time.
In a statement the FCA said the decisions to suspend several open-ended property funds had been taken by fund managers in accordance “with their internal governance arrangements and in close cooperation with their depositories”.
It added: “The FCA will continue to liaise with the funds as they keep the situation under review.”
Mr Bailey said the suspension mechanism was “sensible” but the regulator did not want to see differential treatment of investors.
However, experts have urged the regulator not to restrict retail investors from accessing the funds.
Ben Blackett-Ord at Bovill, chief executive of regulatory consultancy Bovill, said the FCA should ensure investment in such funds operates in the most fair and transparent way possible.
He said: “I don’t think it’s about restricting access to this type of product because – regardless of the fund structure – the underlying asset is illiquid, so I think liquidity situations will occur from time to time in volatile markets.”
Mr Blackett-Ord said the issue could boil down to the advice gap.
“You would expect that any adviser in this space will remind investors of the potential liquidity issue.”
It is not a systematic problem. Antony GrossmanAntony Grossman, head of investment at law firm Berwin Leighton Paisner, said investors may not have been advised properly.
Mr Grossman said: “It is a problem if investors think they have a totally liquid cash stock, but they haven’t and they never did.”
Mr Grossman disputed whether the FCA needs to intervene.
He said: “It is not a systemic problem.”
A spokeswoman for the FCA declined to comment when Financial Adviser asked if the regulator was currently considering reclassifying open-ended property funds as unsuitable for retail investors.
katherine.denham@ft.com
