On 9 December 2025, the Financial Conduct Authority (FCA) published a consultation paper (CP25/38) setting out its proposals to ensure authorised fund managers (AFMs) have the right tools and systems to manage their funds’ liquidity and use them effectively.

Background

In May 2025, the International Organization for Securities Commissions published its recommendations on fund liquidity risk management. The FCA explains in CP25/38 that it is now consulting on proposals to tailor these recommendations to the UK market.

Key proposals

The FCA’s proposals include:

  • Promoting effective use of anti-dilution tools, such as swing pricing, by AFMs of Undertakings for Collective Investment in Transferable Securities (UCTIS) schemes and Non-UCITS Retail Scheme (NURS) to help prevent the value of investors’ investments being diluted over time due to bearing the costs of other investors entering and exiting the fund.
    • The FCA proposes to make changes to the Collective Investment Schemes Sourcebook (COLL) including to amend: the definition of dilution, the rules in relation to the contents of the prospectus and the rules on the availability of dilution tools.
    • The FCA also intends to provide further guidance in relation to dilution requirements and sale and redemption price parameters.
  • Ensuring that AFMs of UCITS schemes and NURS have robust liquidity risk management processes, especially where they have exposure to less liquid assets.
    • In particular, the FCA proposes to amend the relevant rules in COLL in relation to transferable security criteria, the liquid asset assumption, the eligible market test and permitted transactions.
    • The FCA also intends to provide guidance on factors an AFM should take into account when assessing a transferable security’s liquidity and eligible market requirements

In CP25/38, the FCA also sets out its expectations when an AFM has delegated the portfolio management to a MiFID investment manager but makes clear that it is not proposing new rules or guidance for MiFID investment managers at this point.

In addition, the FCA signposts proposed changes to the baseline liquidity framework for Alternative Investment Funds (AIFs), which it explains will be set out in a 2026 consultation paper. The FCA also makes clear that as part of that consultation it will also consult on revised proposals to address the liquidity mismatch in some authorised AIFs invested in inherently illiquid assets, such as authorised property funds.

Next steps

The FCA has asked for feedback on CP25/38 by 23 February 2026.