FCA looks into fair play on funds

The Financial Conduct Authority has launched a discussion paper seeking views on investing in illiquid assets such as real estate through open-ended funds. The paper follows the closure of a series of large open-ended real estate funds last July following the result of the EU referendum and a subsequent mountain of redemption requests. In particular, the FCA is keen to ensure that investors that take opposing stances on whether they want to remain or withdraw from a fund are treated fairly. It said the purpose of the paper was to “gather more evidence to decide whether changes to our regulatory approach are needed to enhance market stability and promote competition in the sector, while protecting consumers”. Investing in illiquid assets provides investors with a number of benefits, such as the potential to earn strong investment returns in the medium to long term and diversification of portfolio risk. Megan Butler, executive director of supervision – investment, wholesale and specialist at the FCA, said: “This discussion paper is a great opportunity for all stakeholders to think carefully about the management of risk, particularly around redemptions, if investors are looking for a quick exit. “We want to engage with fund managers and the investors whose money they manage to understand what problems they think exist. Specifically, in the context of open-ended funds, we want people to consider how well the current rules address those problems and what further regulatory intervention might be needed. We look forward to industry and consumers giving us their views and opinions.” The FCA will draw on the responses received, together with the further supervisory work it is undertaking to decide whether or not it needs to propose any changes to current rules and guidance. It is seeking feedback by 8 May. The Association of Real Estate Funds, which is undertaking its own investigation, due to be published by Easter, through independent consultant John Forbes, has already welcomed the process. Chief executive John Cartwright said: “We welcome the FCA’s discussion paper and its focus on ensuring that the regulatory environment for open-ended property funds continues to provide market stability and protect consumers. “The discussion paper is a timely development for the property funds industry and follows on from our own work to maintain a regulatory landscape that works in the best interests of its clients. Last year, the Association of Real Estate Funds commissioned an independent report to assess the impact of the UK’s decision to leave the European Union on the real estate market and evaluate whether any improvements to regulation or fund structures could be made. The primary focus of this research, which is due to be published for public consultation in March, is to ensure that our industry continues to provide comprehensive investor protection and deliver the best possible outcomes for our clients. “We will be responding to the discussion paper in due course and we look forward to working with the FCA to identify any areas where best practice could be established, either by the industry itself or by the regulator.” • To send feedback, e-mail david.hatcher@estatesgazette.com or tweet @hatcherdavid or @estatesgazette