Bank of England considers curbs on property funds

The Bank of England is considering curbs on withdrawals from property investment funds after Britain’s vote to leave the European Union roiled the sector, the Sunday Telegraph newspaper said late on Saturday.

The paper said it understood that the BoE was considering “enforced notice periods before redemptions, slashing the price for investors who rush to the door, or additional liquidity requirements for funds”.

A spokeswoman for the central bank declined to comment on the report, and the newspaper did not give a source for its information.

Andrew Bailey, the head of Britain’s Financial Conduct Authority, told a BoE news conference on Tuesday that the structure of open-ended real estate funds needed to be reviewed, as investors rushed to cash in their investments.

The BoE – where Bailey was deputy governor until he moved to the FCA this month – last year expressed concern about funds that invest in assets which can become illiquid in a crisis, but allow investors to withdraw funds without notice.

On Friday the FCA issued guidance to property funds to avoid disadvantaging investors who had not sought to redeem funds.

The Sunday Telegraph said regulators were considering requiring funds to ask investors to give a notice period of 30 days to six months for redemptions, or to hold more liquid assets to meet withdrawals, such as cash or shares and bonds in property-related companies.

More than six British property funds suspended withdrawals last week to tackle a tide of redemptions after the June 23 vote to leave the EU unnerved investors who are worried that the uncertainty will hit demand to rent and buy commercial property.

Source: Reuters