For years, fund liquidity has been treated a bit like the tide: assumed to come in and go out reliably, rarely questioned until the day it doesn’t. Managers have relied on the assumption that if an asset is listed on an eligible market, it must be sufficiently liquid to meet redemptions. Investors have assumed their fund manager is monitoring liquidity closely. Both assumptions have now been challenged.

In PS26/17: Enhancing Fund Liquidity Risk Management, published on 13 August 2026 following consultation paper CP25/38, the Financial Conduct Authority (FCA) introduces new requirements aimed at strengthening how fund liquidity is assessed, managed and evidenced.

The rules apply to authorised fund managers (AFMs) of UK UCITS schemes and non-UCITS retail schemes (NURS). They are implemented through the Collective Investment Schemes Sourcebook (Liquidity Management) Instrument 2026 (FCA 2026/54) and take effect from 1 February 2027.

Certain requirements are subject to transitional provisions until 1 August 2027, including the deadline for updating prospectus disclosures and the treatment of recently issued securities already held before the rules take effect.

Why the FCA is acting now

The FCA’s reforms follow a series of market events and developments in international regulatory standards that have highlighted the importance of effective liquidity risk management.

In 2016, a number of commercial property funds froze dealing in the days after the EU referendum. In 2019, the LF Woodford Equity Income Fund was suspended, and subsequently wound up, after redemption requests outpaced its ability to sell less liquid holdings. Both episodes highlighted the challenges that can arise when fund redemption terms are not aligned with the liquidity of underlying assets.

The Bank of England’s Financial Policy Committee has since identified this mismatch as a potential source of systemic risk, not just a consumer protection issue.

International regulatory developments have also been a significant driver of reform. The Financial Stability Board (FSB) published recommendations on open-ended funds in 2023. In May 2025, the International Organization of Securities Commissions (IOSCO) followed with revised recommendations on fund liquidity risk management, which the FCA helped develop. PS26/17 forms part of the UK’s implementation of these international standards.

While the removal of the “listed equals liquid” presumption may be associated with the Woodford case, the FCA attributes the reforms primarily to the FSB and IOSCO recommendations.

Separately, the FCA published CP26/35 in October 2026, proposing changes to redemption terms for authorised funds investing in inherently illiquid assets, including property. This consultation addresses related liquidity challenges but forms a separate workstream from PS26/17.

The key milestones are:

  • 2016: the EU referendum is followed by a wave of commercial property fund suspensions.
  • 2019: the LF Woodford Equity Income Fund is suspended and subsequently wound up.
  • 2023: the FSB publishes recommendations addressing structural vulnerabilities in open-ended funds.
  • 2025: IOSCO publishes revised global liquidity risk management recommendations, reflecting the FSB’s work.
  • 2025–26: the FCA consults through CP25/38 and finalises the UK’s implementation of these standards through PS26/17, given legal effect through FCA 2026/54.

 

So, what do the changes mean in practice for fund managers?

Removing the listed asset presumption

For a long time, an asset listed on an eligible market benefited from a presumption of liquidity. Under the new rules, this presumption has now been removed.

The FCA expects managers to assess and evidence asset liquidity, not assume it. This places greater emphasis on the effectiveness of firms’ liquidity assessment methodologies and supporting stress-testing arrangements.

The FCA has also reduced the window for holding recently issued securities awaiting admission to trading from one year to 20 business days.

Key expectations include:

  • liquidity assessments that consider the characteristics of underlying assets rather than relying solely on their listing status;
  • appropriate stress-testing to support the assessment and ongoing management of liquidity risk; and
  • a shorter period for recently issued securities awaiting admission to trading.

New anti-dilution requirements for authorised funds

Historically, dilution management has largely been a single-priced fund’s problem. Under the new rules, dual-priced funds are brought into the anti-dilution regime for the first time.


Where a fund allocates portfolio transaction costs when setting unit prices, managers will need to demonstrate that appropriate anti-dilution policies, calibration and governance arrangements are in place.


Key expectations include:

  • formal, documented anti-dilution policies and procedures;
  • mechanisms that can be applied at each relevant valuation point;
  • appropriate calibration and ongoing review of anti-dilution arrangements; and
  • an annual retrospective assessment of how the mechanisms have operated in practice.

New guidance on liquidity stress-testing

Two new guidance annexes provide further detail on the FCA’s expectations for liquidity risk management and stress testing. One incorporates an updated UK version of the European Securities and Markets Authority (ESMA) liquidity stress-testing guidelines, while the other sets out good practices for liquidity risk management.

Together, they address areas including scenario design, reverse stress-testing and the role of depositaries in overseeing the testing. The FCA’s suggested minimum frequency is quarterly, or more often if a fund’s characteristics warrant it.

The guidance reinforces the importance of integrating liquidity stress-testing into ongoing risk management, rather than treating it as a standalone compliance exercise.

Key considerations include:

  • build stress-testing into product design, not just ongoing monitoring;
  • use both hypothetical and historical scenarios, and reverse stress-testing;
  • keep risk management independent from portfolio management when running the tests; and
  • be able to show the FCA, on request, what action was taken as a result.

Preparing for PS26/17 implementation

With the main requirements taking effect on 1 February 2027, AFMs should consider reviewing their existing liquidity risk management frameworks against PS26/17 and the accompanying guidance.

A gap analysis against the new rules and the guidance in COLL 6 Annex 5 and Annex 6 can help firms identify where changes may be required and prioritise implementation activity.

The transitional provisions give firms until 1 August 2027 to update relevant prospectus disclosures and apply the shorter derogation period to certain recently issued securities. Firms should consider how these requirements fit within their wider implementation plans.

Early engagement with boards, risk and compliance functions, and depositaries can also support a coordinated approach, allowing sufficient time for review, challenge and approval ahead of the relevant deadlines.

How fscom can help

fscom Compliance Maturity Specialists™ supports authorised fund managers in assessing their existing liquidity risk management frameworks against PS26/17 and identifying areas that may require strengthening ahead of implementation.

Our advisory and assurance services can support reviews of anti-dilution policies and calibration, liquidity stress-testing arrangements, prospectus disclosures and governance frameworks. We also work with firms to assess the operational effectiveness of existing arrangements, prioritise necessary changes and strengthen supporting documentation.

Whether your firm is undertaking an initial gap analysis or progressing its implementation programme, our specialists can provide support tailored to your regulatory requirements and existing capabilities.

Looking ahead

PS26/17 marks a shift in how liquidity risk is assessed, governed and evidenced across UK UCITS schemes and NURS, reflecting wider international standards.

For AFMs, the priority is to understand how the requirements affect existing arrangements and ensure that any necessary changes are appropriately planned, implemented and documented.

If your firm needs support assessing its liquidity risk management framework, developing anti-dilution policies or preparing for the new stress-testing expectations, please get in touch.

This post contains a general summary of guidance and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate.