Ninety Days' Notice

A fund that offers daily dealing while holding property or other assets that take months to sell is making a promise its portfolio cannot keep under pressure. 

Most of the time the gap is covered by a cash buffer, and investors never notice. When redemptions spike, the gap shows, and UK retail investors have watched it show repeatedly, with suspensions in open-ended property funds after the financial crisis, after the 2016 EU referendum, and again in 2020 when material valuation uncertainty froze funds across the IA Direct Property sector.

On 8 October the FCA published CP26/35, Fair redemption terms for authorised funds investing in illiquid assets. It proposes that any NURS fund with at least 50% of its scheme property in inherently illiquid assets should deal for redemptions no more than once a month, with a minimum notice period of 90 days. The FCA names platforms, advisers, investment consultants and SIPP operators as affected parties alongside fund managers, and comments close on 11 December 2026.

What the FCA is proposing

• Scope. Any NURS fund at or above the 50% threshold becomes a fund investing in inherently illiquid assets (FIIA), regardless of its current dealing terms. In practice that means direct property funds and some NURS funds of alternative investment funds. The guidance also reaches funds with material illiquid exposure below 50%, and the FCA says their redemption terms will be scrutinised in detail at the authorisation gateway.
• Redemption terms. One redemption dealing day a month and a 90-day minimum notice period, matching the LTAF regime, with a 185-day ceiling on settlement and pricing by day 182. There is no hardship waiver, and an accepted request can only be revoked where the manager is satisfied it does not prejudice other investors.
• Suspensions and deferrals. Managers must accept redemption requests during a suspension, and time spent suspended counts towards the notice period. The wider deferral power currently reserved for NURS FAIFs would extend to every NURS fund with limited redemption arrangements.
• Disclosure. The existing FIIA risk warning, which tells investors they may experience a delay, is replaced by a plain statement that money arrives at the end of the notice period and that the investor carries the market risk in the meantime. Prospectuses must state how long an investor will normally wait for proceeds.
• Timing. Existing funds get two years to comply and must give investors at least a year's notice, with the change treated as significant rather than fundamental so no unitholder vote is needed. New funds would be caught six months after final rules are made.

The problem with getting out first

The core issue the FCA is addressing is first-mover advantage. In a daily-dealt fund holding illiquid assets, the manager meets early redemptions from cash and the most liquid holdings, because the property cannot be sold in time. Investors who leave first are paid at the full NAV, and those who stay are left holding a less liquid, more concentrated portfolio that may have to be sold at a discount later. Anti-dilution tools help, but the FCA notes that a manager pricing a daily redemption has to guess at the cost of selling assets months later, and if that guess is too low the remaining investors absorb the difference.

A notice period paired with a monthly dealing day changes the mechanics. The manager knows the full redemption demand in advance of each dealing day, can sell a representative slice of the portfolio to meet it, and can price the exit on actual rather than assumed costs. That is why the FCA describes notice periods as a design feature that makes these funds safer, rather than a restriction that makes them riskier.

The second attempt

This is not new thinking. In 2020 CP20/15 proposed notice periods of 90 to 180 days for property NURS funds, and the FCA paused it because the distribution chain was not ready and IOSCO and the FSB were rewriting the international standards on liquidity risk. Six years on, the FCA accepts that some platforms have upgraded, largely to carry LTAFs, while others still face significant challenges, and it says those challenges should not stop it addressing the mismatch this time.

The proposals have also widened. CP20/15 covered real estate only, and CP26/35 captures all inherently illiquid assets, in line with IOSCO's revised recommendations. It sits alongside PS26/17, published in August, which removed the presumption that a listed security is liquid and added guidance on how managers should assess the liquidity of transferable securities, and alongside the liquidity proposals for unauthorised AIFs in CP26/28.

The cost of the status quo is in the FCA's own numbers. Daily-dealt illiquid NURS funds hold cash materially above the roughly 6% average seen in comparable funds with 90-day notice, in some cases more than double. That cash drag is, in effect, the cost of offering daily liquidity on illiquid assets, paid by every investor every year in exchange for liquidity that tends to disappear exactly when it is needed.

Where disclosure meets liquidity

This is where CP26/35 meets the FCA's wider work on consumer investment disclosure, including CP26/24. Under the Consumer Composite Investment regime in DISC, an illiquid fund already adds one point to its risk score and must carry a low-liquidity warning, and the product summary has to include any applicable FCA risk warnings. CP26/35 rewrites the FIIA warning that feeds directly into that summary.

The point we would make to firms is that simplified disclosure is only as good as the liquidity story underneath it. For a retail investor in an illiquid fund, the notice period matters more than almost anything else in the document, so a shorter, plainer product summary has to put it, and the market risk carried during it, in the headline rather than the small print. Firms that have rebuilt disclosure templates for the CCI regime should check now that those templates can carry this language for FIIAs and for any NURS fund with limited redemption arrangements.

What it means for distributors

1. Platforms. The FCA says outright that success depends on distributors upgrading their infrastructure. The practical issues it lists are transfers that are delayed by the notice period, long deferrals that often need manual handling, switches that cannot complete until the notice period ends, and accepting redemption instructions during a suspension, which platforms told the FCA in 2020 their systems could not do. Two years is a short runway for any platform that is not already LTAF-capable. ISA eligibility is also unresolved, since NURS funds with notice periods would qualify for the Innovative Finance ISA while the industry wants Stocks and Shares ISA parity with LTAFs, so platforms should map their FIIA holdings inside Stocks and Shares ISAs now.
2. Advisers and model portfolio providers. The FCA's view is that a notice period does not automatically make a fund complex, that two-step advice on redemption should not cause significant difficulty, and that quarterly-rebalanced models can hold these funds, as some already hold LTAFs. It also warns against treating property securities as a like-for-like replacement for direct property. With at least a year's notice going to investors, advisers should expect client questions and make sure suitability records capture each client's liquidity needs.
3. SIPP operators. Units that cannot be realised within 30 days are non-standard assets for capital purposes. The FCA proposes a three-year transitional provision treating existing FIIA units in SIPPs as standard, asks whether the surcharge is justified at all for authorised funds with notice periods, and will consult separately. It also asks about transfers between SIPP operators. This sits alongside CP26/20, where due diligence on regulated collective investment schemes does not change with redemption terms.
4. Fund managers near the threshold. Hybrid property funds that cut direct property below 50% after CP20/15 keep a three-month buffer before reclassification, but any fund running close to the line will need to evidence that it will not drift above it for long.

The bottom line

The principle behind CP26/35 is simple, which is that a fund should not promise faster liquidity than its assets can deliver. After three rounds of property fund suspensions and a paused consultation, the FCA is now writing that principle into the rulebook, and the burden of the fix falls as heavily on platforms, advisers and SIPP operators as on fund managers. Firms that wait for the policy statement before starting work will find the two-year window considerably shorter than it looks, and the consultation is the moment to put the operational problems on the record.

This article is commentary on a consultation paper and does not constitute investment advice. The proposals may change before final rules are made. Trescore Advisers is a consultancy and is not authorised to provide investment advice.