UK FCA final rules on enhancing fund liquidity risk management

The UK Financial Conduct Authority (FCA) has published a policy statement PS26/17 confirming its final rules and guidance which make amendments to the liquidity risk management framework for authorised fund managers (AFMs) of UK Undertakings for Collective Investment in Transferable Securities (UCITS) schemes and non-UCITS retail schemes (NURS). The measures follow the December consultation and are intended to strengthen investor protection and promote effective liquidity risk management.

Key changes include:

• Requiring AFMs to have anti-dilution tools available for use, to better protect investors from the risk of their holdings being diluted by the costs incurred by other investors entering and exiting the fund.
• Strengthening the rules governing how an AFM assesses and monitors the ongoing liquidity risk of transferable securities.
• Introducing new Handbook guidance on liquidity risk stress testing, alongside: (i) an updated UK version of the European Securities and Markets Authority's liquidity stress testing guidelines; and (ii) a separate annex on good liquidity risk management practices for UCITS schemes and NURS.
• Removing the "listed asset presumption". An AFM will no longer be able to presume that because a transferable security is admitted to trading on an eligible market, its liquidity would not compromise the AFM's ability to redeem units.

Following consultation feedback, the FCA also confirmed that the existing derogation from the eligible market test for recently issued securities will be retained but shortened from one year to 20 business days.

The final rules and guidance do not propose any changes to the scope of the rules with respect to money market funds (MMFs). Where new guidance has been added, this will not apply to MMFs. The FCA anticipates that future work on UK MMF regulatory reform will consider how changes to the rules and guidance will apply to MMFs.

The new rules and guidance will come into force on 1 February 2027, with transitional provisions for some rules applying until 1 August 2027. This is to give firms additional time to update fund prospectuses and comply with the shorter derogation period for the eligible market test for recently issued securities. The FCA also confirmed that it will consult separately on wider liquidity proposals for authorised retail funds that invest in inherently illiquid assets, in particular daily-dealt property funds.

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