FCA considers overhaul of fund soft-closure rules

FCA considers overhaul of fund soft-closure rules

The FCA is to consider allowing fund groups to soft close portfolios more quickly in order to protect existing investors.

In a consultation paper released today (September 3) on the implementation of forthcoming Ucits V rules, the regulator said asset managers have requested a change to existing rules governing the closure of funds to new investment.

Though most fund groups seek to soft-close portfolios by simple methods such as increasing initial charges, more concrete measures to preserve capacity can take time.

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In order to limit the issue of new units in a fund - without affecting the ability of existing shareholders to sell positions - an asset manager must review and change the fund’s prospectus, and typically seek FCA approval to do so.

The regulator said today both fund groups and trade associations have requested the option to limit the issue of units at short notice, and added it “recognise[s] there may be benefits” to such a move.

“We are keen to understand the potential effects and risks to investors of modifying this rule, as well as the distribution model for these funds,” the consultation paper said.

But while acknowledging the advantages of prompt liquidity management, the FCA also flagged possible risks to the potential changes.

“Closure to new investment at short notice could create problems, given that many investors use both financial advisers and intermediaries (such as platform service providers), who need to be aware of the [authorised fund manager’s] intentions so they, in turn, can stop accepting new investments,” the paper said.

“We also wish to look at the benefits and risks of other options that might be attractive to AFMs, such as allowing existing regular savings investments to continue while closing to new lump-sum investments.”

The FCA added it may need to look at other national and international work on fund liquidity in order to ensure rule changes are consistent.

The deadline for comments on changes to the soft-closure regime is December 7.