New rules for property funds proposed by UK watchdog
Investment funds in commercial property should suspend trading when valuations become uncertain.
Britain’s Financial Conduct Authority has proposed in draft rules to apply lessons from a market run after the Brexit vote.
The logo of the new Financial Conduct Authority is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. The Financial Services Authority has been scrapped from April 1 amid reforms to fix a supervisory system criticised for failing to spot the financial crisis coming, forcing Britain to bail out banks. Two new bodies will replace it - the FCA and the Prudential Regulation Authority. REUTERS/Chris Helgren (BRITAIN - Tags: BUSINESS POLITICS LOGO)
The FCA proposed a package of rules and guidance for funds that hold illiquid assets including commercial property that are hard to sell in stressed market conditions when investors often ask for their money back.
“Open-ended funds that invest in illiquid assets can encounter difficulties if significant numbers of investors simultaneously try to withdraw their money at short notice,” the FCA said in a statement.
After the result of the UK referendum on EU membership in June 2016 several property funds were temporarily suspended.
The FCA said the suspensions generally worked as intended and that no major overhaul such as introducing mandatory liquidity buffers was needed, but that improvements could be made.
The proposals include managers of funds in illiquid assets drawing up contingency plans in case volatile markets start triggering investor cash calls.
The funds should be suspended when an independent valuer expresses uncertainty about the value of illiquid assets, and investors should also be given more information about liquidity risks in these types of funds, the FCA proposed.
Published: by Radio NewsHub