FCA Notice Periods for Illiquid Funds: What CP26/35 Proposes
The Financial Conduct Authority (FCA) is proposing that non-UCITS retail scheme (NURS) funds with at least 50% of their value in inherently illiquid assets, such as direct property, should deal no more than once a month and require investors to give at least 90 days' notice to redeem. The proposals are set out in Consultation Paper CP26/35, Fair redemption terms for authorised funds investing in illiquid assets, published on 8 October 2026. They are not final rules: the FCA is seeking responses by 11 December 2026 and expects to publish final rules in the first half of 2027.
The FCA's concern is liquidity mismatch, where a fund promises daily access to money invested in assets that take months to sell. Only a small number of funds are directly affected (the FCA estimates 17 funds, including feeders, with aggregate net asset value of about £7.22bn at December 2025). However, the consequences reach well beyond fund managers. Financial advisers, wealth managers, platforms, SIPP operators and unit-linked insurers that hold or distribute these funds will need to adapt their advice, systems and customer communications, and the consultation period is the time to assess the impact and decide whether to respond.
Why Is the FCA Revisiting Notice Periods for Property Funds?
This is the FCA's second attempt at the issue. In CP20/15 it consulted on notice periods for NURS property funds, but paused the work because the fund distribution system was not ready for funds with notice periods and international standards were still being developed. The International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) have since revised their liquidity recommendations, and the FCA has now returned with broader proposals covering all inherently illiquid assets, not only real estate.
The FCA identifies four risks of harm arising from the mismatch between daily dealing and illiquid portfolios:
Diluted fund performance, because managers hold large cash balances or listed property shares to meet redemptions. The FCA reports that cash holdings in some daily-dealt illiquid NURS are materially above, in some cases more than double, the average of around 6% in comparable funds with 90-day notice periods.
Less effective anti-dilution tools, because the cost of selling illiquid assets is not known when redemptions are paid.
Investors not making informed decisions, because the promise of quick liquidity hides the trade-offs of illiquid assets.
Repeated and lengthy suspensions, which show that the promise of daily liquidity cannot always be kept.
The consultation builds on PS26/17, published in August 2026, which tightened liquidity risk management rules for UCITS schemes and NURS funds.
What Is the FCA Proposing in CP26/35?
Which Funds Would Be in Scope?
The proposals would apply through the existing regime for funds investing in inherently illiquid assets (FIIAs). A NURS fund is a FIIA where its objectives aim to invest at least 50% of scheme property in inherently illiquid assets, or where it has actually done so for at least three continuous months in the last 12 months. Today, a fund that already deals less than twice a month falls outside the definition. The FCA proposes to remove that carve-out, so FIIA status would depend only on what the fund holds.
The FCA expects the funds affected to be mainly direct property funds and some NURS funds of alternative investment funds (FAIFs). It also proposes to amend the definition of an inherently illiquid asset, including treating a unit in a long-term asset fund (LTAF) as always illiquid.
The three-month buffer would be retained for hybrid funds that temporarily drift above 50%. Falling below the threshold is not a safe harbour: funds with material illiquid exposure should expect detailed scrutiny of their redemption terms at the Fund Authorisations gateway.
Monthly Dealing and a Minimum 90-Day Notice Period
Authorised fund managers (AFMs) of FIIAs would be required to have no more than one dealing day a month for redemptions, with redemption requests made at least 90 days before the relevant dealing day. These would be minimum terms, mirroring the LTAF, and managers could set longer terms within a 185-day maximum. Subscriptions would not be restricted, although a fund accepting subscriptions more often than redemptions would need to value the fund at each subscription point.
The minimum is a floor, not a target. Proposed guidance would make clear that redemption terms should reflect the fund's investment strategy and the reasonable expectations of its target investors, and the FCA states that it would not expect to authorise a fund with a 90-day notice period if it intends to invest substantially in assets that take longer to sell. The FCA has rejected alternatives including a hardship waiver and keeping existing investors on current terms.
Wider Redemption Tools for NURS Funds
Any NURS fund manager would be permitted to introduce limited redemption arrangements where this better aligns the fund's strategy, liquidity profile and redemption policy. Funds with these arrangements would gain the longer deferral power currently available to NURS FAIFs, with a first deferral of no more than a month. The FCA also proposes:
shortening the valuation deadline from 185 to 182 days, with a 185-day settlement limit for all NURS funds with limited redemption arrangements;
making redemption requests irrevocable unless the manager agrees and is satisfied that revocation would not prejudice other investors, with the same change for LTAFs; and
requiring managers to accept redemption requests during a suspension, with the suspension counting towards the notice period.
A New Risk Warning and Fuller Disclosure
The existing FIIA risk warning in COBS 4.5.16R would be replaced, because it refers to possible delays that would no longer be accurate. Any financial promotion for a NURS fund with limited redemption arrangements, not only FIIAs, would need to explain prominently and in plain language that investors will not receive their money until the end of the notice period and will bear market risk during it. Managers would choose the wording, and the product summary under the Consumer Composite Investments (CCI) regime would need to reflect these features.
Prospectuses would need to explain how long investors will normally wait for proceeds and when redemptions may be deferred. Introducing the mandatory terms would be treated as a significant change, rather than a fundamental change requiring unitholder approval, but existing investors would need at least one year's notice.
Proposed Implementation Timetable
The FCA proposes a staggered timetable, measured from when final rules are made:
Existing FIIAs would have two years to introduce the new redemption terms.
New funds launched after the rules are made would need to comply six months later.
Funds brought into the FIIA regime for the first time would need to meet the existing FIIA requirements for managers and depositaries after one year, and change their redemption terms after two years.
Existing non-FIIA NURS funds with limited redemption arrangements, and NURS FAIFs, would have six months, plus a further six months to update their instrument and prospectus.
During the transition, the FCA expects managers to make clear to prospective investors that redemption terms will change, in line with the consumer understanding outcome of the Consumer Duty. Stocks and Shares ISA eligibility is unresolved. NURS funds with notice periods would be eligible for the Innovative Finance ISA, and the FCA states it will take ISA eligibility into account when deciding if and when to make final rules.
What Does CP26/35 Mean for Advisers, Platforms and Other Intermediaries?
Financial Advisers and Wealth Managers
The FCA does not consider that a notice period makes a FIIA unsuitable or automatically complex, but advisers will need to consider clients' investment horizons and likely need for cash. For model portfolios, it notes that quarterly rebalancing could accommodate a notice period, and warns that property securities may not be an equivalent substitute for direct real estate.
Platforms and Distributors
Platforms face the most operational work. The FCA acknowledges challenges with transfers, switches and deferrals, but is clear that intermediaries must adapt. For non-advised customers, firms should ensure investors have the information they need to understand the terms, in line with the Consumer Duty.
SIPP Operators and Unit-Linked Insurers
SIPP operators would benefit from a proposed three-year transitional provision allowing existing FIIA units to be treated as standard assets for capital purposes, ahead of a separate consultation. The FCA does not propose changes to the permitted links rules in COBS 21, so a FIIA would remain a permitted link, but insurers offering unit-linked policies would need to decide how to handle the notice period.
Key Themes
Three messages run through the paper. The FCA treats redemption terms as part of product design, presenting a notice period as a feature rather than a weakness. The requirement for consistency between strategy, liquidity profile and redemption policy applies to every NURS fund, whatever its position against the 50% threshold. And the FCA expects the distribution chain to invest in supporting non-daily-dealt funds, as part of its wider aim of widening retail access to productive assets.
What Should Firms Do Now
The appropriate response depends on a firm's role. For most firms a targeted impact assessment will be enough; a wholesale review is unlikely to be needed.
AFMs of NURS funds with significant illiquid exposure should consider:
assessing each fund against the amended FIIA and inherently illiquid asset definitions, including funds near the 50% threshold;
testing whether current dealing terms are consistent with the time realistically needed to sell a representative slice of the portfolio, and documenting that assessment;
identifying changes needed to the instrument, prospectus, financial promotions and CCI product summary;
planning investor communications, including the interim messaging the FCA expects during the transition;
reviewing anti-dilution, deferral and suspension procedures, and how depositary oversight will work; and
briefing the board and agreeing who owns implementation.
Advisers and wealth managers should identify clients and model portfolios holding potentially affected funds and review how suitability and rebalancing processes would handle a notice period. Platforms, SIPP operators and unit-linked providers should assess operational readiness for transfers, switches and deferrals.
All affected firms should consider responding to the consultation by 11 December 2026, particularly on the two-year implementation period, ISA eligibility and operational feasibility. Decisions and interpretations should be documented so that firms can show the FCA how they reached their position.
Frequently Asked Questions
What is the FCA proposing in CP26/35?
The FCA proposes that NURS funds with at least 50% of their value in inherently illiquid assets deal no more than once a month and require at least 90 days' notice for redemptions, aligning them with long-term asset funds. These are consultation proposals, not final rules.
Which funds are affected by the proposed notice periods?
Mainly NURS funds investing directly in property and some NURS funds of alternative investment funds. The FCA estimates 17 funds, with about £7.22bn of assets, would be in scope. Other NURS funds with limited redemption arrangements would face the new disclosure rules.
When would the new redemption terms apply?
Responses are due by 11 December 2026, and the FCA expects final rules in the first half of 2027. Existing funds would have two years from the date the rules are made to introduce the new terms; new funds would have six months.
Will funds with notice periods remain ISA-eligible?
This is unresolved. NURS funds with notice periods would be eligible for the Innovative Finance ISA. The FCA has said it will take Stocks and Shares ISA eligibility into account when deciding if and when to make final rules.
What do the proposals mean for financial advisers?
Advisers will need to consider clients' time horizons and need for access to money when recommending affected funds, review model portfolios that hold them, and take care when considering substitutes. The FCA does not regard a notice period on its own as making a fund complex.
How Compliance Angle Can Help
Compliance Angle supports fund managers, investment firms and advisers in understanding and implementing regulatory change. Our support is practical and proportionate, tailored to each firm's business model, permissions, size and regulatory risk. In relation to CP26/35, we can help with:
impact assessments and gap analyses against the proposed FIIA requirements, through our FCA risk management and governance support;
updating liquidity risk management policies, procedures and implementation plans, through our FCA compliance frameworks and policies service;
reviewing investor communications, financial promotions and risk warnings, through our Consumer Duty support; and
building the new requirements into compliance monitoring and board reporting, through our ongoing compliance support.
If you would like to discuss how the proposals may affect your firm, please contact us or email info@complianceangle.co.uk.
Source: Financial Conduct Authority, CP26/35: Fair redemption terms for authorised funds investing in illiquid assets, 8 October 2026.
