Regulatory Alert: New FCA Rules Governing Open-Ended Funds Take Effect from September 2020

Following the U.K. Financial Conduct Authority (“FCA”)’s 2018 consultation paper on illiquid assets and open-ended funds, the FCA has finalised new rules governing open-ended funds that invest in illiquid assets.

These rules that will take effect from September 2020 and include:

• enhanced depositary oversight and increased disclosure of liquidity management processes for a new category of “funds investing in inherently illiquid assets”;
• suspension of dealing by non-undertakings for collective investment in transferable securities retail schemes (“NURSs”), where there is material uncertainty about the valuation of at least 20% of the scheme;
• production of contingency plans dealing with liquidity risks; and
• additional disclosure requirements including details of liquidity risk management strategies in prospectuses.

These new rules are brought into force by the Non-UCITS Retail Schemes Investing in Illiquid Assets Instrument 2019, which makes changes to the Financial Services and Markets Act 2000, the Open-Ended Investment Companies Regulations 2001 and the Conduct of Business and Collective Investment Schemes sourcebooks of the FCA Handbook. The FCA may also launch another public consultation if it decides to move forward in applying this amended regime more widely than NURSs.