FCA proposes 90 day notice periods for UK open ended property funds

On Oct 8, the Financial Conduct Authority published consultation paper CP26/35, proposing a mandatory minimum 90-day redemption notice period and a maximum monthly dealing frequency for authorised retail funds holding over 50% in inherently illiquid assets, predominantly commercial real estate. The proposed rules target approximately £7.22 billion across 17 open-ended funds. The regulatory objective is to permanently address the structural liquidity mismatch between daily investor redemptions and the settlement timelines of physical property assets.

This measure represents a direct intervention in retail vehicle structures rather than an operational recommendation. The scope of CP26/35 binds authorised fund managers operating Non-UCITS Retail Schemes (NURS) that meet the 50% illiquidity threshold. If enacted as proposed, the regime will end the availability of daily-dealing open-ended property products for British retail investors.

Scale and market comparison

The £7.22 billion currently affected by CP26/35 across 17 funds marks a contraction from previous market stress points. According to AQMetrics, the UK open-ended property fund market originally targeted by the regulator had over £10 billion in assets under management tied up across suspended funds during 2020. That period demonstrated that daily redemption structures failed when commercial real estate transactions slowed.

Comparing the current £7.22 billion figure against the £10 billion suspended in 2020 shows a structural retreat from these vehicles. Investors and fund operators have already begun shifting away from daily open-ended real estate structures over the intervening years. The FCA proposal aims to lock in a permanent fix for the remaining 17 vehicles rather than relying on discretionary fund suspensions during future periods of market stress.

Regulatory mechanism and implementation

Under the proposed rules in CP26/35, any NURS holding at least 50% in inherently illiquid assets must enforce a mandatory notice period of at least 90 days before an investor can redeem shares. In addition, fund managers must restrict transaction dealing frequency to a maximum of once per month. This mechanism prevents secondary market runs where short-term redemptions force managers to liquidate physical assets below market values.

According to the Financial Conduct Authority, existing authorised fund managers of affected NURS will receive a two-year transition period to comply with the mandate once final rules are implemented. Furthermore, managers must give existing investors at least one year's advance notice before mandatory notice periods become operational within the fund terms. This extended lead time gives asset managers a total structural runway to adjust portfolio liquidity, renegotiate credit lines, or restructure fund vehicles.

The policy trajectory builds on previous regulatory attempts. On August 3, 2020, the FCA published consultation paper CP20/15, which initially proposed a longer redemption notice period of between 90 and 180 days for property funds. However, the regulator put final decisions on hold in May 2021 via Feedback Statement FS21/8, citing the need for further coordination with tax authorities and market participants before issuing CP26/35.

Consequences for asset managers and capital allocation

For fund managers operating open-ended UK real estate vehicles, the mandatory 90-day notice period forces a complete operational restructuring. By eliminating daily dealing, managers will no longer need to maintain high cash cushions to satisfy unexpected daily redemptions. On our reading, this change should allow fund managers to keep a higher proportion of capital deployed directly in income-generating commercial real estate rather than cash equivalents.

Another second-order effect is the reduction of forced property sales during liquidity downturns. Historically, daily redemption mandates required managers to sell prime commercial assets at discounted prices to meet immediate cash calls. Under a mandatory 90-day window, managers gain critical time to conduct orderly asset sales, preserving portfolio valuations and protecting long-term investors from fire-sale discounts.

However, changing redemption terms alters institutional and retail capital flows into UK property. Discretionary wealth managers and model portfolio providers frequently require daily liquidity for asset allocation rebalancing. On our reading, forcing a 90-day delay will likely lead these institutional allocators to permanently exit open-ended NURS structures, redirecting institutional capital into closed-ended real estate investment trusts or private real estate debt funds.

Tax rules and the ISA counterweight

For this regulatory reading to hold without causing immediate capital flight, tax treatment issues must be resolved. The primary counterweight to the FCA proposal lies in the tax qualification rules for retail investment wrappers. According to trade body the Investment Association, mandatory notice periods could disqualify property funds from stocks and shares ISAs under HM Revenue and Customs (HMRC) tax rules.

Under current HMRC regulations, assets held within stocks and shares ISAs must generally meet specific liquidity requirements. The Investment Association warned that imposing a mandatory 90-day notice period risks triggering widespread retail disinvestment if HMRC rules automatically disqualify these 17 funds from ISA eligibility. If retail investors are forced to exit due to losing ISA tax shelter status, the resulting capital outflows could trigger the exact wave of property liquidations that CP26/35 seeks to prevent.

Timeline and milestones to watch

Market participants must track several dated regulatory milestones to assess whether CP26/35 proceeds in its current form. The FCA's public consultation period for CP26/35 closes on December 11, 2026. This extended consultation window allows market participants, fund managers, and tax bodies to submit detailed responses regarding vehicle structures and ISA compliance.

Following the close of consultation on December 11, 2026, the Financial Conduct Authority expects to publish its final policy rules in H1 2027. If the final rules are enacted in H1 2027 without significant alteration, the two-year transition period and the requirement for one year's advance notice to investors mean that full operational enforcement across all affected funds will take effect between 2028 and 2030.