Fund suspension

Fund suspension

Following the recent news that top stock picker Neil Woodford has suspended trading in his largest fund, we thought it may be useful to provide some clarity as to what this means for IFAs and their clients.

With the prior agreement of the depositary, the authorised fund manager may, and if the depositary so requires must, without delay, temporarily suspend the issue, cancellation, sale and redemption of units in an authorised fund, where due to exceptional circumstances it is in the interest of all the unitholders in the authorised fund. 

The fund manager and the depositary must ensure that the suspension is only allowed to continue for as long as it is justified, having regard to the interests of the unitholders.  The fund manager or depositary is required to inform the FCA as soon as is practicable and provide written confirmation of the suspension and the reasons for it. 

The fund manager is also responsible for ensuring that a notification of suspension is made to unitholders of the authorised fund as soon as practicable after suspension commences.  This must draw particular attention to the exceptional circumstances which resulted in the suspension including, if known, its likely duration. 

During a suspension, the authorised fund manager should inform any person who requests a sale or redemption of units that all dealings in units have been suspended and that that person has the option to withdraw the request during the period of suspension or have the request executed at the first opportunity after the suspension ends. 

The suspension must cease as soon as practicable.  The fund manager and depositary must formally review the suspension at least every 28 days and inform the FCA of the results of this review and any change.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Suspension is allowed only in exceptional cases and when in the best interests of the unitholders. The fund manager and depositary will have made this determination, ensuring that any alternative courses of action have been discounted.

On receipt of a notification of suspension, those clients affected may contact their IFA for further guidance.  We recommend that these clients are made aware that the authorised fund manager will need to ensure that any suspension, while maintaining unit holders’ interests, is temporary, of minimal duration and is consistent with the provisions of the prospectus and the instrument constituting the fund.

We further recommend that clients’ attention is drawn to the requirement of the fund manager to ensure that sufficient details are made available to keep unitholders appropriately informed – it is likely these details will be published on its website:

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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