The UK's Financial Conduct Authority is thinking of changing the way it regulates open-ended funds that invest in illiquid assets such as property in the wake of some recent setbacks.

The question, as usual, is whether there should be more rules. Interested parties should include operators and investment managers for such funds; ancillary service providers; intermediaries, such as platform service providers; pension plan operators; independent financial advisors; life assurance companies with exposure to illiquid assets such as property, either by direct investment or through holdings in investment funds; HNW professional investors; and discretionary wealth managers.

When the UK voted to leave the European Union on 23 June last year, a decision that the FCA did not like, several fund managers of open-ended property funds suspended dealing in their funds or applied adjustments to the funds' asset valuations. The FCA is taking this as "a clear example of the tensions that arise when trying to balance the competing interests of investors." Although the fund managers thought that they were acting in the best interests of all investors in their funds and there was no sign of a spillover effect in the wider economy, the regulator is not convinced that their 'mechanisms' were effective. There have been previous examples of open-ended funds having to take exceptional measures, not least during the financial crisis of 2008 when a number of funds suspended dealing for extended periods of time.

The FCA says that it is looking for evidence of the effect that the 'Brexit' vote has had on the liquidity of open-ended property funds and is keen to start a broader discussion of how it should deal with the possibility that there may be a mismatch between investors’ expectations of how liquid their fund is and the fund manager’s ability to meet those expectations.

The paper often states the obvious, with such platitudes as "open-ended funds investing in illiquid assets may experience difficulties if investors expect to be able to withdraw their money quickly and at short notice," and "the manager of a fund that invests in illiquid assets and offers very frequent redemption opportunities must manage a further tension in how to treat customers fairly." The consultative exercise as a whole appears to lack urgency. There are no specific proposals for rules or guidance. Comments should be in by 8 May.

Open-ended funds in the UK have approximately £35 billion invested in commercial real estate, compared with about £65 billion held in real estate investment trusts and other UK-listed closed-ended vehicles.