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A split has emerged between the UK’s financial watchdog and global standard-setters over how to deal with runs on open-ended funds, an issue at the forefront of policy makers’ minds in the wake of the Brexit referendum when several funds had to temporarily shut out investors from their cash.

The Financial Conduct Authority pushed back against recent international proposals to give authorities around the world a “power of direction” over funds in exceptional circumstances, forcing them stop redemptions.

The FCA already has such a power but decided against deploying it in June, when seven open-ended property funds, which allow investors daily access to their cash, had to close temporarily following the Brexit vote. Those closures sparked a wider review of the structure of open-ended funds by the FCA.

In a discussion paper published on Wednesday to float possible changes to the UK’s rules around open-ended funds’ investment in illiquid assets, the FCA said that a power of direction – proposed last month by the Basel-based Financial Stability Board – could “risk causing the very run on funds the intervention was intended to prevent.”

The FSB is chaired by Mark Carney, governor of the Bank of England.

The FCA’s discussion paper read:

A direction by a regulator to suspend some or all funds investing in a particular asset class might, however, send a signal that investors should not have confidence in that entire asset class and not just specific funds. This would risk causing the very run on funds the intervention was intended to prevent.

The FCA also shied away from a ban on open-ended funds investing in illiquid assets such as property, or on retail investors placing their cash in open-ended funds, because of “the predictable costs and negative impact [such bans] would be likely to cause.”

Megan Butler, the FCA’s executive director of supervision, said:

We want to engage with fund managers and the investors whose money they manage to understand what problems they think exist. Specifically, in the context of open-ended funds we want people to consider how well the current rules address those problems, and what further regulatory intervention might be needed.

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