Responding to the Bank of England’s comments on vulnerabilities in open-ended funds, Ryan Hughes, head of active portfolios at investment platform AJ Bell, comments:
“The fact that the Bank of England has included vulnerabilities of the open ended fund market in its Financial Stability Report tells you just how seriously they are taking the issues that have dogged the asset management industry this year, firstly with the Woodford debacle and then with the M&G Property suspension this month.
“Ever since Mark Carney made his ‘built on a lie’ comment regarding liquidity mismatches in open ended funds, the BoE was likely to step in to force change in the asset management industry.
“The proposals set out by the BoE and the FCA make it clear that the current rules are not tough enough and that further measures are required to ensure that fund liquidity does not become a systemic risk. This is despite the fact that the FCA only proposed tougher rules for certain types of funds in September this year.
“The proposals could be interpreted that the use of daily trading for illiquid assets may be coming to an end. In addition, we may see more frequent use of ‘market value adjustments’ where the price of funds are manually marked down for those wanting to redeem to reflect the true value of the underlying assets.
“The FCA will now look to incorporate the proposals from the Stability Report into new rules that will be issued in 2020.”