Keeping track of legislation sounds like a monumentally tedious task, but failing to do so can mean contradictions arise in law that leave everyone confused.
The latest example of this is the Financial Conduct Authority’s (FCA) proposal that investors in open-ended property funds give 180 days’ notice to withdraw their money.
Given liquidity concerns and the continued gating of these funds, this seems like a sensible move.
But the devil lies in the detail.
An HM Revenue & Customs consultation, published on 28 October, stated: “This [proposal] runs contrary to the Isa legislation which requires account holders to be able to access the funds or transfer them to another Isa within 30 days of making an instruction to the account manager.
“Under current legislation, such property funds would no longer be eligible investments.”
It added: “In order to mitigate the impact on Isa account holders and Isa managers, if the change is introduced, the government is considering whether to allow existing investments in open-ended property funds to remain within the Isa, while prohibiting ‘new’ investments in such funds.”
One after the other
The sheer volume of consultations that flow out of the FCA could easily make you think that the financial watchdog is almost afraid to make a decision.
But Oliver Creasey, head of property research at Quilter Cheviot; believes that “it looks like the FCA has made up its mind on the [180-day notice period] issue and HMRC is now looking at how it can be best implemented for Isa holders”.
“While we see the HMRC consultation as marginally good news for Isa owners holding property funds, as they don’t have to sell their existing investments, it is of limited value to them and does nothing to help new property investors seeking to make use of the tax efficient vehicle.
“Over time, the amounts held in property funds within Isas is liable to fall sharply.
“Many investors are likely to be put off by the FCA notice period, and even if they are not forced to sell out of the funds, we believe they are likely to choose to do so.”
Creasey called into question the appropriateness of the FCA proposals.
“While we acknowledge the inherent difficult in providing liquidity in an illiquid asset class, we fell that the best approach is to educate investors about the liquidity risk and recognise that while every effort is always made to service redemption requests, money may not always be immediately available.
“We note, in particular, that the M&G fund has been closed since early December 2019 for liquidity reasons, demonstrating that even a 180-day notice period may not be enough to fully protect investors.”
Anyone wishing to contribute to the FCA consultation on Isa investments in open-ended property funds can do so up to 13 December.