FCA Mandates 90-Day Notice Periods to Stabilize Long-Term Investment Funds

The Financial Conduct Authority has introduced a mandatory 90-day notice period for investors in open-ended funds holding illiquid assets like property. This regulatory shift aims to prevent fire sales and fund suspensions during market volatility, ensuring asset managers can liquidate positions in an orderly fashion while providing retail and institutional investors with greater structural certainty.

What was announced

The Financial Conduct Authority (FCA) is implementing new rules designed to bridge the liquidity mismatch in funds that invest in long-term, illiquid assets. Under these regulations, investors will be required to provide 90 days' notice before they can withdraw their capital. This replaces the current model where many property and private market funds offer daily redemptions despite the underlying assets taking months to sell.

The regulator noted that the previous system often forced managers to hold excessive cash reserves to meet potential redemptions, which diluted returns, or led to total payment suspensions when cash ran dry during periods of market stress. By enforcing a notice period, the FCA intends to give managers sufficient time to sell assets without being forced into rushed sales that lower prices and harm remaining investors. This is intended to make liquidity-driven suspensions less likely across the sector.

The transition period for these rules is structured to minimize immediate disruption. Existing funds have been granted a two-year window to achieve full compliance. Furthermore, these funds must provide their current investors with at least one year’s notice before the new redemption terms take effect. This move aligns the UK’s regulatory framework with emerging international liquidity standards for open-ended funds, specifically targeting those supporting private markets and property investments.

"Funds should be clear about whether they offer quick access or are built for longer-term investments like property."

Michelle Beck, director, markets, at the FCA.

The companies involved

The Financial Conduct Authority is the primary conduct regulator for financial services firms and financial markets in the United Kingdom. Operating as an independent public body, it is funded by the firms it regulates and is responsible to the Treasury and Parliament. The FCA’s remit covers the regulation of conduct for both retail and wholesale financial services firms, including asset managers, banks, and insurers. Its statutory objectives include protecting consumers, enhancing market integrity, and promoting competition.

Headquartered in London, the FCA was established in 2013, taking over the conduct and relevant prudential responsibilities from the former Financial Services Authority (FSA). In the context of asset management, the FCA oversees thousands of firms, ensuring that investment products are marketed fairly and that the underlying structures of these funds do not pose systemic risks to the UK’s financial stability. The regulator frequently collaborates with international bodies to ensure the UK remains a competitive and transparent hub for global capital, particularly as private markets become a larger component of the investment landscape.

What FF News has reported before

FF News has closely tracked the FCA’s recent efforts to tighten oversight across various financial sectors. The regulator recently made headlines when the FCA Shuts Down 24 CFD Firms in Major Crackdown on Misleading UK Authorisation, highlighting a zero-tolerance approach to regulatory misrepresentation. Additionally, the authority has been active in the digital asset space, as seen when the FCA Targets Illegal London Crypto Traders in Major Multi-Agency Crackdown. Beyond enforcement, the regulator is also focused on growth and accessibility; recently, the FCA Unveils Strategic Roadmap to Boost SME Access to Finance via Open Finance and Regulatory Reform, demonstrating a dual focus on market protection and economic expansion.

What this means

This move signals the end of the "liquidity illusion" in UK property funds. For years, the industry has struggled with the paradox of offering daily liquidity on assets that are inherently illiquid. By mandating a 90-day notice period, the FCA is effectively forcing a cultural shift among investors, moving them away from viewing property funds as "cash-plus" vehicles. While this may initially dampen the appeal of these funds for retail investors accustomed to instant access, it protects the broader market from the contagion of mass suspensions. Asset managers are now under pressure to communicate these trade-offs more transparently, potentially leading to a more stable, albeit less liquid, private assets sector.