FCA issues consultation on protecting investors in authorised funds affected by the invasion of Ukraine

FCA is consulting on rules which will allow Authorised Fund Managers to create separate unit classes (side pockets) for retail investment funds affected by the invasion of Ukraine.

The Russian invasion of Ukraine has resulted in some investments becoming illiquid or untradeable. Where the affected investments are a significant proportion of a fund’s assets, some funds have suspended dealing. This means that investors are unable to further invest, or to redeem their assets.

FCA seeks to ensure that these funds operate fairly and efficiently in the interests of all investors. FCA propose allowing AFMs to use separate new classes of units (side pockets) to hold affected investments. Side pockets could allow:

  • new investors to enter the fund without sharing in the exposure to the affected investments;
  • existing investors to sell the units which relate to assets that are not affected investments; and
  • some funds to end their current suspension of dealing.

The consultation primarily affects:

  • managers of UK authorised retail funds with exposure to affected investments
  • depositaries of these funds
  • ancillary service providers to authorised fund managers and depositaries
  • providers of investment services offering access to these funds, including Self-Invested Personal Pension (SIPP) providers, as well as Individual Savings Account (ISA) managers
  • distributors of these funds
  • investment intermediaries who advise on or invest in these funds
  • insurers who offer unit-linked insurance contracts linked to these funds
  • discretionary wealth managers, including those who offer model portfolios
  • other professional or institutional investors

FCA also welcomes views from individual consumers and groups representing their interests.

The consultation closes on 16 May 2022.

Harshil Patel