City watchdog dodges decision on property funds after industry pressure

·2 min read
Financial Conduct Authority
Financial Conduct Authority

The City regulator has delayed reforms to property funds which could require investors to give up to 180 days' notice of withdrawals after pressure from fund managers.

Lobbying from fund groups, which claimed the changes would trigger heavy withdrawals from investors, has led the Financial Conduct Authority to postpone its decision until the Autumn at the earliest.

The regulator first proposed the new rules last summer, after property funds holding a combined £13bn blocked their investors from withdrawing cash in March as the pandemic struck.

But fund groups claimed the proposal to require investors to give between 90 to 180 days' notice of withdrawals would be complicated to enforce and said they would need two years to implement it.

The FCA said it had "taken the feedback into consideration, specifically around the operational work necessary for fund managers and most other firms to support notice periods".

"If we do proceed with applying mandatory notice periods for property funds, we will allow a suitable implementation period before the rules come into force, to allow firms to make operational changes," it added.

The FCA's plan for notice periods is intended to ease the pressures faced by funds holding hard-to-sell assets like property when they are hit by large withdrawal requests and struggle to offload assets quickly enough.

But their introduction would also disqualify any new investments into these funds from being held in an Isa. Fund managers claimed this would threaten their funds' viability, given around 40pc of their assets are held by Isa investors.

Fund groups began reopening their property funds in September, with one of the largest, the £2bn M&G Property Portfolio, set to resume dealing on Monday. Two funds, the £400m Aegon Property Income fund and the £370m Aviva Investors UK Property fund, remain suspended.

Ryan Hughes, of fund shop AJ Bell, said the continued suspensions underlined the need for a change in the rules.

"The simple fact that two property funds remain suspended and have been for over a year, while many others hold more than 20% cash to meet potential short-term redemptions, still implies that the current structure needs addressing sooner rather than later," he said.

Investors have pulled record amounts from property funds since their reopening, ahead of the FCA's introduction of new rules. Calastone, which processes fund transfers, said £1.9bn had been withdrawn since September, including a record £590m in March.

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