The FCA has published CP25/38: Enhancing fund liquidity risk management to consult on proposals designed to strengthen the liquidity risk management framework for authorised funds, specifically UCITS schemes and Non-UCITS Retail Schemes (NURS). The consultation is aimed squarely at Authorised Fund Managers (AFMs) and seeks to ensure that UCITS and NURS managers have robust, proportionate tools, governance and processes to manage liquidity effectively in both normal and stressed market conditions, while continuing to protect investors and support market stability.
The proposals reflect revised international liquidity risk management standards issued by IOSCO in May 2025, developed with input from the Financial Stability Board. The FCA intends to embed these standards into the UK regime through targeted enhancements to COLL, rather than a wholesale redesign of the existing framework.
Why This Matters
The FCA highlights that robust liquidity risk management is critical to investor protection and market stability. In particular, it helps ensure that fund redemption terms remain aligned with the liquidity profile of underlying assets, reduces the risk of “first-mover advantage” where redeeming investors benefit at the expense of remaining investors, and mitigates systemic risks arising from liquidity mismatches in open-ended funds.
While the FCA considers the current framework broadly sound, it believes targeted refinements and additional guidance will address gaps identified through supervisory work.
Scope of Proposals
The proposals in CP25/38 are primarily targeted at:
- AFMs of UK UCITS and NURS;
- MiFID investment managers where portfolio management is delegated by the AFM;
- Depositaries of authorised funds; and
- Investment platforms and fund distributors.
The paper also notes that liquidity risk management is relevant to other fund types (including ETFs and Money Market Funds) where they operate as UCITS or NURS.
Key Proposals
- Anti-Dilution Tools:
AFMs would be required to:
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- Have appropriate liquidity management and anti-dilution tools available, such as swing pricing, dual pricing, and dilution levies;
- Use such tools effectively where appropriate; and
- Account for both explicit and implicit liquidity costs when tools are applied, including market impact from sales.
This aims to ensure that costs arising from investor flows (subscriptions/redemptions) are fairly allocated between investors entering, exiting, and remaining in a fund.
- Liquidity Risk Management Processes: The FCA is proposing enhancements to AFMs’ liquidity risk systems, including:
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- Requirement for robust liquidity classification and monitoring of assets, particularly less liquid assets;
- Incorporation of liquidity considerations into portfolio construction and management decisions; and
- Ensuring liquidity assessments go beyond simplistic assumptions such as listed asset presumption alone.
The FCA expects AFMs to regularly evaluate whether the liquidity profile of assets supports the funds’ redemption terms.
- Liquidity Stress Testing: AFMs would be expected to conduct regular, forward-looking stress tests for fund liquidity under both normal and stressed market conditions. The stress tests should:
- Reflect a range of plausible scenarios;
- Inform governance and risk management decisions; and
- Provide insights into how funds might behave under market stress.
The FCA also proposes enhanced guidance on stress testing through a new COLL guidance annex.
- Guidance Annexes in COLL: Two new guidance annexes are proposed within the Collective Investment Schemes Sourcebook (COLL). These will cover effective liquidity risk management systems and controls, as well as updated liquidity stress testing guidance, building on existing ESMA materials. The FCA stresses that these annexes are intended to clarify expectations rather than introduce fundamental rule changes
- Delegation of Portfolio Management: The consultation clarifies expectations when an AFM delegates portfolio management to a MiFID investment manager. While no new rules are proposed for MiFID investment managers, the AFM will remain ultimately responsible for effective liquidity risk oversight.
Next Steps
The FCA is seeking responses to CP25/38 by 23 February 2026. Feedback can be submitted via written responses or the FCA’s online survey.
The FCA has also confirmed that liquidity risk management for AIFs will be addressed separately as part of the 2026 AIFMD review, with a particular focus on liquidity mismatch and redemption terms for less liquid asset classes such as property.
How Complyport Can Help?
At Complyport, we support asset managers and authorised fund managers in navigating regulatory change and strengthening their liquidity risk frameworks in a practical, proportionate way. In relation to CP25/38, we can help by:
- Liquidity Framework Review and Gap Analysis: We assess your current liquidity risk management arrangements against the Fuca’s proposals and draft COLL guidance, identifying gaps, weaknesses, and areas requiring enhancement.
- Policies, Governance and Documentation: We support the development and update of liquidity risk policies, stress testing frameworks, escalation procedures, and governance documentation, ensuring clarity, consistency, and regulatory alignment.
- Advisory, Training and Ongoing Support: We deliver tailored training for Compliance, Risk, Portfolio Management, and Senior Management teams, alongside ongoing advisory support to help firms respond confidently to supervisory scrutiny.
Contact Us
To understand how these changes may impact your business, or to discuss how Complyport can streamline your compliance with the proposed new liquidity requirements, get in touch to arrange a meeting with one of our Subject Matter Experts.
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