On April 28, 2022, the UK’s Financial Conduct Authority opened a consultation on the creation of rules that would protect investors from certain investments that are becoming “illiquid or untradeable” following Russia’s invasion of Ukraine. The FCA reports that these affected investments have made it increasingly difficult for authorized fund managers (AFMs) to establish fair and accurate unit prices for funds holding these investments, making it harder for investors to further invest in these funds or redeem their assets, and has caused significantly affected funds to suspend dealing altogether.
The purpose of the consultation is to establish rules that would allow AFMs to create separate new classes of units (side pockets) to hold these affected investments in order to minimize their effect on new investors wishing to enter affected funds and existing investors’ ability to sell units, and enable significantly impacted funds to end their suspension of dealing. The rules would primarily affect professionals and companies involved in the management of UK authorized retail funds with exposure to these affected investments, as well as consumers who have directly invested in these funds or are exposed to them through pension contributions or long-term life assurance policies.
The FCA also urges the public to provide feedback on their proposals by May 16, 2022, and, depending on the responses received, intends to publish a final policy statement, final Handbook rules and guidance as soon as possible.