LONDON (Reuters) – The Bank of England (BoE) on Thursday backed plans to make investors wait up to six months before getting money back from property funds, saying there could be benefits from an even longer delay.
Most property funds in Britain remain suspended since a lockdown began in March to fight the coronavirus pandemic, even though many of the funds offer daily redemptions.
The Financial Conduct Authority (FCA) has proposed that a wait of up to six months for redemptions could avoid a stampede by investors and widespread fund suspensions in future.
The BoE’s Financial Policy Committee, on which the FCA sits, had already set out principles for a better alignment between redemption periods and ability to sell assets in the fund to meet cash calls.
“The FPC considered that, from the perspective of financial stability… there would be benefits from extending notice periods to at least as far as the range proposed in the consultation,” it said in a statement on Thursday.
The “disruptive dash for cash” seen in markets in March meant there is a need to examine the “mismatch” between redemption terms and the liquidity of assets in money market funds as well, it said.
Global regulators are already looking at this issue.
The non-bank financial system will always have some need for additional liquidity in times of stress and this should be done in ways that avoid forced sales of assets and disruption to markets, it said.
The committee said it was important to examine whether central banks should have facilities to provide liquidity to the wider financial system in times of stress, as they already do with banks.
“Any such backstop of liquidity would need to be provided in a way that is not just effective and efficient but that also, through appropriate pricing and accompanying regulatory requirements, reduces incentives for excessive risk taking in the future.”
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