Are your funds ready for the FCA’s new liquidity rules?

What happened?

What do the FCA’s new liquidity rules mean for firms 

The FCA has introduced final rules to improve how UK retail investment funds manage liquidity risk. Outlined in Policy Statement 26/17 (PS26/17) the regulator sets out how it intends to improve liquidity management in UK retail investment funds and protect investors when money moves in or out of a fund. It applies to funds governed by the Undertakings for Collective Investment in Transferable Securities framework (UCITS funds) and non-UCITS retail schemes (NURS). From the 1February 2027, affected firms will need suitable anti-dilution arrangements, clearer policies, more detailed assessments of how easily securities can be traded and stronger liquidity stress testing. Transitional arrangements for some requirements run until 1 August 2027.

Why does it matter?

Why are the rules changing 

Open-ended funds may offer frequent access to investors’ money even when some assets take time or cost more to sell. If those costs are not allocated fairly, investors who remain in the fund can end up paying for the activity of those entering or leaving. In difficult conditions, investors may also face delays when trying to withdraw their money. Authorised fund managers (AFMs) will retain flexibility but their approach needs to reflect each fund’s strategy, investors, assets and liquidity profile. 

Who is affected?

The policy applies directly to AFMs of UK UCITS funds and NURS. It also applies to investment managers regulated under the Markets in Financial Instruments Directive (MiFID) where portfolio management has been delegated to them, and to depositaries of authorised funds. Changes to pricing, product features or access may also affect platforms, distributors and advisers. The AFM remains responsible for liquidity management even where portfolio management has been delegated. 

Key risks

What changes under FCA’s PS26/17? 

AFMs will need practical anti-dilution arrangements for each relevant fund, supported by clear policies on when dilution may arise and how to manage its impact. The regulator is leaving firms room to choose the right approach, rather than setting fixed triggers, but decisions should reflect the real costs of buying or selling assets. 

In practice, firms should focus on: 

• Using judgement while showing that investors are treated fairly, whether they are joining, leaving or staying in the fund 

• Keeping annual reviews, records and data strong enough to support and explain key decisions 

• Looking beyond whether a security is listed, and assessing how easily it can actually be traded 

• Applying the shorter 20-business-day window for recently issued securities to reach an eligible market, with transitional arrangements until 1 August 2027 

• Running liquidity stress testing in normal and stressed conditions, and using the results to inform oversight, escalation and redemption terms 

Actions to take

How can firms prepare for the new enhanced fund liquidity risk management rules? 

It’s an important time for firms to review each affected fund against the final rules and new Handbook guidance. This can test whether the anti-dilution mechanism is suitable, whether calibration reflects the individual fund, and whether current data can support the annual fair-treatment assessment.  

Clear ownership, useful management information and documented decisions will help senior managers understand changing risks. Implementation plans must reflect the February 2027 commencement date and the relevant August 2027 transitional deadline. 

Recommendations

The FCA plans to consult separately on wider liquidity proposals for authorised retail funds investing in inherently illiquid assets, including daily-dealt property funds. Firms now have a limited period to turn PS26/17 into working arrangements before the rules take effect. 

 The FCA is giving firms flexibility, but not discretion without accountability. Firms will need to show not only that liquidity controls exist, but that they are appropriate for the fund, supported by robust governance, informed judgement and credible evidence.