FCA grilled platforms on asset freezes in March before Woodford saga

Consulted on fund illiquidity

Professional Adviser can reveal the FCA wrote to platforms in March to enquire about their processes around asset freezes
Professional Adviser can reveal the FCA wrote to platforms in March to enquire about their processes around asset freezes
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As the fallout from the Woodford Equity Income fund suspension continues, Professional Adviser can reveal the FCA wrote to platforms in March to enquire about their processes around asset freezes.

Towards the end of March the regulator wrote to some, but apparently not all, investment platforms after it did work with a small number of other firms to see how they would respond in the event a fund was suspended.

The regulator then communicated with platforms to outline its findings and urge them to consider how prepared they were for fund suspensions, saying it would follow up after they outlined their preparedness and contingency plans. It was not clear why the FCA did not contact all investment platforms.

Professional Adviser also understands the watchdog asked the companies to consider how they would treat customers fairly and communicate with clients in the event of assets being frozen. As an example, PA also understands it asked if businesses pre-warned clients about fund suspensions where possible.

This information request from the FCA arrived in the pigeon-holes of platforms a couple of months before the open-ended Woodford Equity Income fund was suspended to allow manager Neil Woodford and his firm "time to reposition the element of the fund's portfolio invested in unquoted and less liquid stocks, into more liquid investments".

Consultation on rules

The regulator formally consulted on changes to rules surrounding illiquid assets and open-ended funds between October 2018 and January 2019 after the UK referendum result saw a number of property funds temporarily suspended.

The suspensions were the result of an increase in negative sentiment towards the UK commercial property sector following the 23 June EU referendum and placed tremendous pressure on the cash liquidity buffers held within funds invested in the area.

In its consultation, the FCA proposed funds should suspend trading when an independent valuer expressed uncertainty about the value of the illiquid assets in the fund, while it also wanted to force fund managers who invested mainly in inherently illiquid assets to produce contingency plans for liquidity risks.

The regulator also wanted more information to be disclosed about the liquidity risks in open-ended funds. It is set to publish its final rules and guidance on this matter later in 2019.

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