The Financial Conduct Authority has proposed minimum notice periods and limits on how often certain UK funds can deal, aimed at open-ended funds that hold property and other illiquid assets. The proposals were published on 8 October 2026 as consultation paper CP26/35, and responses are due by 11 December 2026.
The changes would apply to non-UCITS retail schemes (NURS) that are predominantly invested in assets that are hard to sell quickly, and that still offer regular redemptions. The FCA says fund managers often have to pay investors before they can sell the more illiquid assets in a portfolio. That gap becomes harder to manage when holdings such as real estate or infrastructure can take a long time to sell.
What the FCA proposes
The regulator proposes three main changes. It would limit the frequency of dealing days, meaning the dates on which a fund manager redeems or cancels units. It would introduce minimum notice periods, the time an investor must wait between asking to redeem and the redemption being carried out. It would also align these minimum terms with the long-term asset fund (LTAF) regime, which the paper describes as carrying a minimum 90-day notice period.
Two further proposals sit alongside these. Investors in LTAFs would be allowed to revoke a redemption request during the notice period, provided the fund manager is satisfied that doing so would not be unfair to other investors. The FCA also proposes letting all NURS fund managers adopt similar limited redemption arrangements if they choose to, which would widen the option beyond the funds that fall within the core definition.
Which funds and firms are affected
The core group is NURS funds with at least 50% of scheme property invested in inherently illiquid assets. The FCA also names investors in any other NURS fund with limited redemption arrangements, and investors who hold these funds indirectly through pension or savings wrappers and life assurance policies. Authorised fund managers, depositaries, retail and pension platforms, financial advisers, investment consultants, SIPP operators and providers of unit-linked life products are all listed as audiences for the paper.
The paper states that the new proposals would affect relatively few funds. Because NURS rules already limit the share of scheme property that can be held in inherently illiquid assets, the FCA expects the changes to apply mainly to direct real estate funds and to some funds of funds. The proposals do not extend to other types of authorised fund at this stage.
The FCA sets out the risks it wants to address. Where a fund offers quick exits while holding slow-to-sell assets, the paper lists diluted performance from holding large cash balances, weaker tools for allocating dealing costs between entering and exiting investors, and retail investors who may not understand the trade-offs. Respondents to the 2020 consultation raised the example of a 90-day notice period, under which an investor would not learn the redemption price for at least 90 days while the fund's net asset value could change. The FCA describes that risk as an inherent feature of investing in illiquid assets. It also says that an exit at net asset value, funded from a liquidity buffer, can advantage the redeeming investor while leaving remaining investors more exposed to dilution.
ISA eligibility is also part of the debate. The FCA says that NURS funds with notice periods would be eligible for the Innovative Finance ISA, but notes that industry feedback has been strong that these funds should remain eligible for the Stocks and Shares ISA, to be treated consistently with the LTAF. The paper says the FCA will take ISA eligibility into account when deciding if and when to make final rules.
Why the regulator is returning to the issue
The FCA first consulted on minimum notice periods for NURS funds holding at least 50% of their property in real estate, under CP20/15 in 2020. It paused that work, citing concerns that the fund distribution system was not equipped to handle funds with notice periods. It also pointed to international standards on liquidity risk that the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board were developing at the time.
The new proposals are broader than the 2020 version, which covered real estate only. The FCA says the current paper captures all inherently illiquid assets, which aligns it with IOSCO's category for illiquid funds. IOSCO recommends that firms restrict liquidity for these funds through long notice or settlement periods.
Investor protection is the stated aim. The FCA says it wants clear standards for how firms design and operate investment products, and fewer people buying unsuitable products. Its background note also points to significant growth in private markets, which it describes as an important route for professional and, increasingly, retail investors to diversify their investment. Those markets are less transparent than public ones, and it takes longer to find buyers and sellers for assets such as real estate or infrastructure.
Timetable and implementation
Responses are due by 11 December 2026, and final rules are expected in the first half of 2027. Under the paper's proposals, existing NURS funds that fall within the amended definition would get a two-year implementation period. The FCA says this would give fund managers time to change dealing terms, update fund literature and work with administrators and distributors, so that investors can access these funds in broadly the same way as now. Funds launched after the rules are made would face a shorter timetable, with the new rules applying six months later.
Until the rules are final, the existing redemption terms of these funds remain in place.