The Financial Conduct Authority (FCA) has expressed concerns over UCITS funds and exchange traded funds' (ETFs) ability to deliver on promises of daily liquidity for end-investors.
Speaking at the regulator's asset management conference in London, FCA wholesale firms manager Tony Hanlon said fund houses must recognise the burden of managing liquidity has shifted from investment banks to asset managers.
With investment banks having significantly scaled back their market-making functions since the financial crisis, the FCA is now looking more closely at how fund groups reconcile investing in relatively illiquid assets with the commitments demanded by open-ended UCITS and ETFs.
"We have become concerned at the number of funds promising daily liquidity that are unable to deliver that at something close to the daily price," Hanlon said.
"We are calling on the industry to recognise the scale of the changes that have taken place, and make sure they are capable of providing the necessary liquidity."
IFAonline's sister title Investment Week revealed last summer that the regulator's predecessor, the FSA, had contacted groups over their ability to meet potential redemptions from bond funds.
Today's comments suggest the concerns do not simply focus on fixed income, however.
"Just because something is a UCITS fund or ETF does not mean the underlying asset is any more liquid."
The regulator is to spend time ensuring fund managers have adequate processes to deal with potential redemptions from products investing in illiquid asset classes, according to Hanlon.
"If they are unable to [provide the necessary liquidity] they will need to have alternative processes in place," he added.
Aiming to be top three UK financial planner
Lowest measure since index launched in 1995
Complaints into double figures
Flexible Investment sector reviewed
'I’m disabled, I’m not sick'