The Financial Conduct Authority (FCA) has revealed that in addition to the infamous breaches made by Woodford Investment Management last year, seven investment funds have breached the 10% limit for illiquid assets held by open-ended funds a total of eight times since 2017.
Breaching the 10% limit, which has previously been criticised by the FCA as a "design flaw" in UCITS legislation, was notably a side effect of the liquidity governance failures that led to the collapse of Woodford Equity Income and ultimately Woodford Investment Management last year.
Responding to a Freedom of Information (FOI) request submitted by the Financial Times, the FCA's figures reveal that incoming Governor of the Bank of England Andrew Bailey had understated the number of 10% rule breaches in testimony to the Treasury select committee during his time as chief executive of the regulator.
Half of the breaches revealed by the FOI were passive in nature, having resulted from market moves, but four were classed as active, arising as a result of investment decisions.
Despite rules requiring fund managers to inform the FCA of breaches immediately, one fund manager did not inform the regulator for 10 months, according to the FOI.
The FT said that the FCA had initially declined to provide information under the FOI Act, but had changed its mind after the paper called for a review of the decision.
However, the FCA declined to provide names of the funds that breached the rules.
Stuart Alexander, chief executive of Gemini Investments, said: "There needs to be tighter rules on fund illiquidity,"
"Ucits funds should not be allowed to hold illiquid assets - it does nobody any favours and adds unnecessary risk."
"If a fund manager makes an active breach, it should not take more than six months to fix. It should be done in six hours."
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