FCA slams property fund providers amid liquidity risks concerns

The UK financial services regulator has warned open-ended property fund providers to improve their practices after finding that they “did not adequately plan” for the spate of fund suspensions that rocked the investment marketplace last summer.

And if companies fail to improve practices the regulator could take steps to restrict, or in an extreme case even curtail retail investors from investing in such vehicles in the future.

In a statement released earlier today the Financial Conduct Authority said that “broader questions” about open-ended funds’ investments in illiquid assets, including whether the current regulatory regime may “need to be revised”.

In its statement the FCA outlined its findings of its review into fund suspensions and pricing adjustments, following last summer’s vote to leave the European Union. It showed that property fund firms did not have clear policies for valuing portfolios in difficult market conditions, the FCA said.

The FCA said that some firms did not consider the impact of their actions on distributors, and that providers could also “improve their communications to platform providers” in order to better serve investors.

The regulator acknowledged that the actions taken by fund groups last July were in some ways “effective” in preventing market uncertainty from escalating, but added that a selection of the more than 60 businesses it assessed, must “remedy” their approach.

No ‘clear policies’

“In general, AFMs did not adequately plan, or have clear policies and procedures, for valuing their property portfolios under stressed market conditions,” the FCA said.

“We expect all firms that were affected by either the suspension of property funds or the application of FVP [fair value pricing] adjustments will review how they dealt with this event.

“In some cases, individual firms will have to implement remediation measures to ensure they comply with our expectations and requirements,” The FCA statement said.

The findings of the FCA review will be considered alongside the responses to its Illiquid assets and open-ended investment funds discussion paper (DP 17/1) which was open for comment until 8 May.  The response to the Discussion Paper, including whether the current regulatory regime may need to be revised, will be summarised in a feedback statement “in due course”, the FCA said.

ABOUT THE AUTHOR
Gary Robinson
Deputy Editor, International Investment and Head of Video at Open Door Media Publishing. A fully qualified journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as an IFA.

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