CP26/35 - Redemption terms for funds investing in illiquid assets

Background

On 8 October 2026, the FCA published CP26/35, "Fair redemption terms for authorised funds investing in illiquid assets" (the CP), in which it looks managing liquidity risks where an open-ended fund is invested in less liquid assets.

We will be publishing a more detailed review of the CP's contents shortly. In the meantime, the key points to note are:

Frequency of dealing days and minimum notice periods

For NURS FIIAs, (i.e., NURS funds which have at least 50% of the value of the scheme's property invested in inherently illiquid assets), the FCA is proposing to

• limit the frequency of dealing days to no more than one a month
• require that the notice period for redemption requests must start at least 90 days before the relevant dealing day

For other NURS funds (i.e., those with less than 50% of value of scheme property in inherently illiquid assets), no minimum redemption term would be specified, but the Authorised Fund Manager (AFM) would have to ensure that the fund's investment strategy, redemption policy and liquidity profile were consistent.

The changes would be brought about by amendments to the existing regime for funds investing in inherently illiquid assets (FIIAs).

Other changes

In addition the FCA would

• allow all NURS fund managers to introduce similar limited redemption arrangements if they so wish
• align these minimum redemption terms with the long-term asset fund (LTAF) regime
• allow LTAF investors to revoke redemption requests during the notice period if the fund manager is satisfied it would not be unfair to other investors.

What happens next?

The consultation period closes on 11 December 2026. A Policy Statement with final rules can be expected at some point in 2027.

The draft rules include a two-year transition period (i.e., to 2029) for NURS funds that would be FIIAs under the new rules, in order to allow AFMs to

• change their dealing terms
• update fund literature and
• work with administrators and distributors to ensure that investors can access these funds in broadly the same way they do now.