FCA tightens the clock on illiquid funds: 90 days to sell, two years to adjust

The FCA has moved to end daily dealing in authorised funds that hold inherently illiquid assets. Under CP26/35, published on 8 October, investors in non-UCITS retail schemes will have to give at least 90 days' notice before redeeming, with existing funds granted two years to comply and required to give investors at least one year's notice of the change (FCA). Consultation closes on 11 December 2026 (FCA).

Key Executive Takeaways

• The FCA is proposing a minimum 90-day redemption notice period for authorised funds holding illiquid assets such as property, replacing the daily dealing model that has repeatedly suspended during stress.
• Existing non-UCITS retail schemes will have two years to comply and must give investors at least one year's notice, meaning the operational and distribution redesign has to start now, not in 2028.
• The reform aligns the UK with new international liquidity standards for open-ended funds, signalling that daily liquidity on illiquid assets is no longer treated as a viable product structure by regulators.

The end of a product fiction

The underlying problem is well understood inside the industry but has rarely been named this directly by the regulator. Some funds currently allow daily withdrawals despite holding assets that cannot be sold quickly without significant loss, and during stress this has forced suspensions or cash hoarding that drags on returns (FCA). The FCA's framing is unambiguous: 'Funds should be clear about whether they offer quick access or are built for longer-term investments like property,' said Michelle Beck, director, markets, at the FCA (FCA). The policy accepts that the liquidity mismatch at the heart of daily-dealing property funds was a design flaw, not a market accident.

Distribution is the hard part

For asset managers, the technical build is manageable. The commercial challenge is distribution. Platforms, model portfolio services and advisers have constructed workflows and client suitability frameworks around daily or near-daily dealing. A 90-day notice period changes how these funds sit inside ISAs, SIPPs and discretionary portfolios, and it changes the conversation with retail and wealth clients who have been sold a liquidity profile the underlying assets never supported. The one-year investor notification requirement for existing funds is, in effect, a mandated repapering and re-education exercise across the entire NURS distribution chain.

A deliberate push into private markets

Read alongside the FCA's growth remit, the proposal is not a retreat from illiquid assets but an attempt to make them investable at scale. By bringing the UK into line with new international liquidity standards for open-ended funds (FCA), the regulator is signalling that credible private markets exposure for UK investors requires honest product architecture. That matters for the wider policy agenda, including the pensions and capital markets reforms the Treasury is pursuing with international partners such as India on asset management and sustainable finance (HM Treasury). If UK-domiciled vehicles can hold property and infrastructure without the suspension risk that embarrassed the sector repeatedly over the last decade, the UK becomes a more credible home for long-duration capital.

What boards should do now

Asset manager boards should treat the two-year transition as a product strategy decision, not a compliance project. Some NURS property and infrastructure funds will not survive the economics of a 90-day notice structure once outflows crystallise during the notification year. Decisions on fund rationalisation, mergers, or conversion to long-term asset fund structures need to be taken in the first half of 2027, well before the compliance deadline bites. The firms that move early will shape the distribution conversation. Those that wait will inherit it.