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LONDON, July 11 (Reuters) - The Bank of England said onThursday it would look at whether rules are needed to helpinvestment funds to cope with multiple requests from customersto get their money back.
The review follows the suspension of withdrawals from theflagship fund of British money manager Neil Woodford, promptinganger among investors and an investigation by the financialwatchdog.
The Bank's Financial Policy Committee (FPC) said the Bankand the Financial Conduct Authority (FCA) would review how fundscan offer daily redemptions while investing in assets that cantake weeks or months to sell in an orderly way.
"This can create an incentive for investors to redeem whenthey expect others to do so," the FPC said.
Bank of England Governor Mark Carney said last month suchfunds were "built on a lie".
International financial regulators have also been concernedthat a customer rush for the exits from a fund could trigger adestabilising fire sale of assets. But attempts to take actionat the international level have not made much progress.
The Bank's review will look at the costs and benefits ofhaving longer redemption periods for funds holding assets thatare hard to sell.
The FPC said about $30 trillion of global assets are nowheld in funds that offer short term redemptions while investingin potentially illiquid assets.
The FCA has opened a formal investigation into eventssurrounding the suspension of the LF Woodford Equity IncomeFund, managed by Woodford, one of Britain's best known assetmanagers.
The around 3.5 billion pound ($4.40 billion) Woodford fundhas been suspended since the start of June when it could notmeet redemption requests from customers because a chunk of itsassets cannot be sold quickly, leaving thousands of investorstrapped.
The review by the Bank and the FCA will focus on macrothreats from redemptions mainly at corporate, real estate andemerging market bond funds in normal and stressed markets.
BoE Governor Mark Carney said on Thursday that Britainneeded to act because international efforts have made littleheadway.
The global Financial Stability Board (FSB) maderecommendations in 2017 that a fund's assets and investmentstrategy should be consistent with redemption terms.
"Unfortunately, subsequent work by IOSCO did not prescribehow this should be achieved and it left implementation tonational authorities and funds themselves," Carney told a newsconference on Thursday.
IOSCO is a global umbrella group for national securitieswatchdogs like the FCA in Britain and SEC in the United States.The Bank and FCA review will seek to turn the FSBrecommendations into workable measures so that investors whochoose to stay in a fund are no worse off than those who want toleave.
The FCA undertook a public consultation on redemptions incommercial real estate and other funds last year and will applyany lessons from Woodford to final rule changes.
($1 = 0.7961 pounds)
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^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Huw Jones. Editing by Jane Merriman) ((huw.jones@thomsonreuters.com; +44 207 542 3326; ReutersMessaging: huw.jones.thomsonreuters.com@reuters.net))
