The Financial Conduct Authority (FCA) is to review its policy options in relation to fund liquidity management, having stated liquidity remains a significant risk for capital markets.
Within the UK regulator’s business plans and risk outlook for this year, it explained liquidity in capital markets could be affected under adverse macroeconomic conditions.
“The observed decline in the inventories of dealers in recent years could affect the ability of market participants to find the liquidity to buy or sell in certain secondary markets,” the report said.
The FCA added poor liquidity management in investment funds creates further risks or wider disruptions to the financial system in stressed market conditions.
It is now looking to ensure fund managers implement available liquidity management tools to deal with investor redemptions or valuation issues.
The UK regulator said it will also continue to participate in the liquidity management debate with national and international authorities.
Andrew Bailey, chief executive at the FCA stressed the regulator’s mission is to serve public interest through the objectives outlined by Parliament.
“To do this we will continue to make difficult decisions. When we make regulatory judgements, we will be more transparent about how we reached them as we know that this is something our stakeholders want,” he said.