FCA Proposes 90-Day Notice Periods for Funds Holding Illiquid Assets

The Financial Conduct Authority on 8 October 2026 published proposed rules that would require investors in UK authorised retail funds invested mainly in inherently illiquid assets, such as property, to give at least 90 days’ notice to access their money, with redemption dealing limited to no more than one day a month.

The requirements are set out in consultation paper CP26/35, Fair redemption terms for authorised funds investing in illiquid assets. They apply to authorised fund managers (AFMs) of non-UCITS retail schemes, known as NURS, where at least 50% of the value of scheme property is invested in inherently illiquid assets, a term the FCA uses for assets that cannot normally be sold quickly without a significant loss in value, including property and infrastructure investments.

Under the proposals, the AFM of an affected fund would not be permitted a dealing day for redemptions more frequently than once a month, and the notice period for redemption requests would have to start at least 90 days before the relevant dealing day. The minimum terms align with the long-term asset fund (LTAF) regime. Managers could set longer notice periods where a fund’s assets or investment strategy require it, and the FCA said it would not expect to authorise a fund investing substantially in assets that take more than 90 days to sell with only a 90-day notice period.

“Funds should be clear about whether they offer quick access or are built for longer-term investments like property,” said Michelle Beck, director, markets, at the FCA. “Our rules will help firms make that clearer and give the market more confidence to invest.”

Some of these funds currently allow investors to take money out daily with no notice period. The FCA said that during periods of stress or volatility some funds risk suspending all payments for lack of available cash, that some hold extra cash and leave less invested in their intended assets, and that rushed sales can lower prices, harm investors who stay invested and put pressure on markets. It said the notice period would give managers time to sell assets in an orderly way, make liquidity-driven suspensions less likely and leave investors more certain of receiving their money.

In the full consultation paper, the FCA said it sees cash holdings in daily-dealt illiquid NURS materially above, in some cases more than double, the average of around 6% across comparable funds with 90-day notice periods. It said redemption terms better aligned to the liquidity of the underlying assets could let managers reduce their reliance on cash buffers and invest more of consumers’ money in the asset class they wanted.

The FCA said the proposals bring the UK into line with new international liquidity standards for open-ended funds. It worked with the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board on the standards, and the affected funds fall within IOSCO’s Category 3 illiquid funds, for which IOSCO recommends restricting liquidity through long notice or settlement periods. The consultation follows PS26/17, the FCA’s August 2026 statement that revised liquidity risk management rules and guidance for UCITS schemes and NURS funds.

The FCA first consulted on the issue in 2020, when CP20/15 proposed notice periods for NURS funds holding at least 50% of scheme property in real estate. It paused that work because of stakeholder concerns that the fund distribution system was not equipped to accommodate notice periods and because the international standards were still being developed. The new proposals are broader, capturing all inherently illiquid assets rather than only real estate.

The FCA said the changes would affect relatively few funds, mainly direct real estate funds and some funds of funds, particularly NURS funds of alternative investment funds (FAIFs), because NURS rules limit a manager’s ability to hold more than 50% of scheme property in inherently illiquid assets. NURS funds have wider investment powers than UCITS schemes: they can invest in real estate and in other funds exposed to illiquid assets, hold 20% of their portfolio in unlisted transferable securities, double the allowance for a UCITS scheme, and borrow with more flexibility.

FIIA Definition and Implementation Timeline

The FCA proposes to amend the definition of a fund investing in inherently illiquid assets (FIIA) by removing the carve-out that currently excludes a NURS fund whose limited redemption arrangements already reflect the time needed to sell its illiquid assets. FIIA status would depend only on portfolio composition, with a fund becoming a FIIA if it remains above the 50% threshold for at least three continuous months in the last 12. The three-month buffer would be retained so that hybrid funds, which several real estate managers adopted after the 2020 consultation by reducing direct property exposure below 50% of net asset value, do not drift in and out of the regime.

Existing funds would have two years to comply and must give investors at least one year’s notice of the change. For new funds launched after the rules are made, the requirements would apply six months later. Funds brought into the FIIA regime for the first time would have to comply with the existing FIIA rules from one year after the rules are made, but would not need to amend redemption terms until the two-year point. Introducing the mandated terms would be treated as a significant change that does not require prior unitholder approval, rather than a fundamental change, because it would not be the manager’s choice.

A maximum redemption period of 185 days would apply, in line with existing rules for NURS funds with limited redemption arrangements. The FCA proposes shortening the valuation deadline from 185 to 182 days so that settlement can complete within the 185-day limit, and clarifying that the unit price must be determined at the first valuation point after the end of the notice period.

Disclosure, Suspension and Related Proposals

The FCA proposes replacing the existing FIIA risk warning with a plain-language explanation that investors will not receive their money until the end of the notice period and that they bear the market risk during it, meaning the amount they receive may be less than when they requested the redemption. Amended prospectus disclosures would apply to all NURS funds with limited redemption arrangements, not only FIIAs.

During a suspension, the AFM would have to accept redemption requests unless it has reasonable grounds to refuse, and the suspension period would count toward the notice period. Existing guidance that makes suspension easier to justify for FIIAs would be deleted; the FCA said that once the prescribed redemption terms apply, short-term liquidity shortfalls or difficulty selling assets quickly should not normally be enough on their own to justify a suspension.

The FCA also proposes allowing the AFM of any NURS fund to introduce limited redemption arrangements where that would better align the fund’s investment strategy, liquidity profile and redemption policy, extending a power currently limited to NURS FAIFs, funds invested substantially in real estate and funds targeting a specified level of return. The longer deferral power available to NURS FAIFs would be extended to all NURS funds with limited redemption arrangements. Separately, LTAF investors would be allowed to revoke an accepted redemption request if the AFM agrees and is satisfied the revocation would not prejudice other investors, with the same test applied to NURS funds operating limited redemption arrangements. The paper also makes minor changes to the Collective Investment Schemes sourcebook to accommodate the Direct-to-Fund dealing model introduced in April 2026.

The paper records alternatives considered and not taken forward: a deferral-only model, a higher 75% threshold, requiring FIIAs to convert to LTAFs, exempting existing investors from the notice period, and a power to waive the notice period in exceptional circumstances.

For self-invested personal pension (SIPP) operators, the FCA proposes a three-year transitional provision allowing existing FIIA units to continue to be treated as standard assets for prudential purposes, ahead of a separate consultation on broader rule changes. The FCA said it will take Stocks and Shares ISA eligibility into account when deciding whether and when to make final rules.

The FCA said tokenisation does not change the fundamental liquidity characteristics of inherently illiquid assets and does not alter the rationale for the proposals, though it noted that secondary markets for tokenised fund units could over time give investors another source of liquidity.

Comments on CP26/35 are due by 11 December 2026 and can be submitted through the FCA’s online response form, by email to [email protected], or in writing to Joshua Carlton at the FCA. The FCA expects to publish final rules in the first half of 2027 after considering responses.