This month we bring you the best bits from various regulators' speeches about the future regulatory model, improvements for standards in financial advice and what’s next for the FCA-Pensions Regulator joint strategy. Read on also for rumours of changes to the rules for unit-linked funds and new rules for non-UCITS retail schemes.

New rules for non-UCITS retail schemes

The FCA has brought in new rules for certain open-ended funds that invest in inherently illiquid assets such as property and real estate. The new rules will not apply to UCITS and other funds which already have restrictions in place. Instead these rules cover non-UCITS retail schemes (NURSs).

The new rules say that investors must be given clear and obvious information about the risks associated with liquidity and each fund must be open about the circumstances in which access to funds may be restricted. Managers of these funds are now obliged to maintain plans to manage liquidity risk.

The rules aim to protect investors’ interests, especially during stressful market conditions. The regulator wants to reduce the potential for some investors to gain at other investors’ expense, and to reduce the possibility of runs on funds, which can lead to ‘fire sales’ of assets which harm fund investors. Such a situation came about shortly after the Brexit referendum of 2016 when several property funds had to suspend dealing.

Under the new rules the FCA has introduced a new category of ‘funds investing in inherently illiquid assets’ (FIIA). These funds will have to meet the following extra requirements.

• Disclose more information about their management of liquidity.
• Standard risk warnings in financial promotions.
• More depositary oversight.
• The provision of 'liquidity risk' contingency plans.

However, these requirements will not apply when a fund matches the dealing frequency of its shares to the liquidity of its assets.

NURSs that invest in inherently illiquid assets will have to suspend dealing if the independent valuer decides there is material uncertainty around the value of more than 20% of the fund’s assets, under the new rules. But the FCA has said that it will allow a fund manager to continue to deal when it has an agreement from the fund’s depositary that this is in the investors’ best interests.

Though these rules do not include UCITS, the high-profile suspension of a recent UCITS fund highlights the wider importance of effective liquidity management in open-ended funds, according to the regulator.