FCA proposes six-months' notice for property fund withdrawals

The Financial Conduct Authority said investors in property funds may have to give six months' notice to withdraw their money in a move to reduce the number of emergency fund suspensions.

The FCA said investors in open-ended property funds could buy and sell units frequently but that the underlying property assets could not be traded as frequently. This "liquidity mismatch" can force fund managers to suspend dealings if too many investors try to redeem.

In times of stress, property prices may also be hard to price, putting further pressure on funds, the FCA said. The regulator said suspensions of property funds had increased in recent years, triggered by events such as Brexit and the Covid-19 crisis. Investors who act too slowly can find their money tied up or reduced by forced sales, the FCA said.

The FCA proposed a notice period of up to 180 days for fund withdrawals and asked for suggestions of other changes that could provide the same protection.

Christopher Woolard, the FCA's acting chief executive, said: ‘We hope the proposed new rules will directly address the liquidity mismatch of these funds making them more resilient during periods of stress, and allowing them to operate in a way that all investors are treated equally.’

The consultation lasts until 3 November and the FCA will publish its final rules as soon as possible in 2021, it said.