On 13 August 2026, the Financial Conduct Authority (FCA) published a policy statement in relation to enhancing fund liquidity risk management (PS26/17).
Background
Consultation Paper 25/38 (CP25/38) proposed targeted changes intended to make improvements to the liquidity risk management framework for retail-focused authorised funds, those being undertakings for collective investment in transferable securities (UCITS) schemes, and non-UCITS retail schemes (NURS).
Summary
Having considered responses to CP25/38 the FCA have set out the following approach in PS26/17:
- Overall approach: The FCA explains that respondents were generally satisfied with proposals to enhance liquidity risk management. In particular, they agreed with its decision to maintain the principle that the liquidity risk management practices of funds should be the ultimate responsibility of the authorised fund manager (AFM).
- Anti-dilution mechanism: The FCA use the term ‘anti-dilution mechanism’ (ADT) to refer to a single-priced fund’s dilution levy, or dilution adjustment, or, in the case of a dual-priced fund, the AFM’s ability to allocate portfolio transaction costs and ability to make provision for large deals. The FCA sets out that there was overall support for AFMs of UCITS schemes and NURS having ADTs available for use, and that these tools should be swing pricing or a dilution levy for a single-priced fund. However, some respondents challenged its assessment of how dual pricing functions as an anti-dilution mechanism and, as a result, the FCA has modified the rule to reflect this to make clear that it is the AFM’s procedures for allocating portfolio transaction costs when setting the prices of units, and the fact that AFMs can make special provision for large deals, which act as the anti-dilution mechanism within the AFM’s control.
- Guidance on ADTs: The FCA also proposed guidance on the calibration of ADTs, including recommending that liquidity costs of transactions should be calculated on the basis of a pro-rata apportionment of scheme property across all unitholders, known as ‘vertical slicing.’ The FCA has now clarified in this guidance that some vertical slicing is not the execution method it would expect to see for every scheme transaction.
- Listed asset presumption: The FCA also explains that there was general consensus on its proposal to remove the listed asset presumption. However, the FCA makes clear that while many respondents agreed with removing the derogation from the eligible market test for recently issued securities, some questioned the application to new fixed-income issuances. Following feedback, the FCA will keep the derogation but is reducing it to 20 business days after issuance in which to secure admission, as opposed to 1 year.
- Other guidance: The FCA also sets out that there was general support for its guidance on good liquidity risk management practices and liquidity stress testing.
Next steps
The FCA sets out that the new rules and guidance will come into force on 1 February 2027. However, transitional provisions will apply to some rules until 1 August 2027, which will extend the time available for making changes to the fund prospectus and for complying with the shorter derogation period for the eligible market test for recently issued securities. The FCA have also provided a transitional provision for stress testing requirements that currently apply to regulated money-market funds but will cease to do so on the revocation of the Money Market Funds Regulation.
The FCA explained that, in addition, it will soon consult on wider liquidity proposals covering authorised retail funds investing in inherently illiquid assets, predominantly daily dealt property funds. These proposals will include widening aspects of the liquidity management toolkit for AFMs of NURS, including through notice periods and deferrals, as well as some minor rule changes to the Long-Term Asset Fund regime.
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