FCA 2027 Fund Liquidity Rules: Is Your Firm Ready for PS26/17?

A targeted UK reform with material operational consequences

On 13 August 2026, the Financial Conduct Authority published Policy Statement PS26/17, Enhancing fund liquidity risk management. The reforms apply principally to authorised fund managers of UK UCITS schemes and NURS, and are also relevant to delegated MiFID portfolio managers and depositaries. They are designed to improve the ability of funds to meet redemption requests on their stated terms, protect remaining investors from dilution and support market integrity.

The framework is deliberately outcomes-focused. Rather than prescribing uniform activation triggers, the FCA leaves fund managers discretion to select and operate arrangements that fit each fund’s strategy, investor base, liquidity profile and dealing terms. That flexibility increases the importance of evidence: policies, cost models, liquidity data, governance records and retrospective reviews need to demonstrate why decisions were reasonable and fair.

1. Anti-dilution tools move from availability to demonstrable effectiveness

For UK UCITS schemes and NURS, fund managers must have policies and procedures for identifying actual or potential dilution, a process for assessing dilution at each valuation point and an anti-dilution mechanism available where dilution creates a material risk to unitholders. For single-priced funds, the mechanism is a dilution levy or dilution adjustment. For dual-priced funds, it is the allocation of portfolio transaction costs within unit pricing, together with the ability to make provision for large deals.

The practical objective is equitable cost allocation. Investors whose subscriptions or redemptions cause the fund to trade should bear an appropriate share of the resulting liquidity cost, rather than transferring that burden to investors who remain in the fund. This is the same economic principle underlying swing pricing, dual pricing and anti-dilution levies, although the operational mechanics differ.

^{Figure 1. Comparison of anti-dilution mechanisms by selection, sizing and application}

Calibration: explicit costs are only the starting point

The FCA expects calibration to consider both explicit and implicit liquidity costs. Explicit costs include brokerage, taxes and other direct charges. Implicit costs include bid-ask spread effects and the market impact created when a transaction is large relative to available market depth. The likely impact of selling a significant quantity of a security to meet redemptions therefore needs to be reflected where relevant.

A robust methodology should link four elements: the size and direction of net investor flows, the assets that would need to be traded to meet those flows, the period over which the trades could be executed and the liquidity available in prevailing market conditions. A pro-rata, or “vertical slice”, approach provides a transparent starting point. For example, if net redemptions equal 5% of the fund’s value, the model initially assumes that 5% of each portfolio holding is sold. It then estimates the transaction cost of that hypothetical set of trades, taking account of factors such as bid-ask spreads, market depth and the time allowed for execution. This produces a portfolio-wide baseline that allocates the expected liquidity cost consistently across holdings. Where actual liquidation would deviate from a pro-rata approach, the cost methodology should be capable of representing that difference.

Choosing and governing the mechanism

^{Figure 2. Best practices for the choice of an adequate anti-dilution tool}

The FCA does not impose fixed activation thresholds. This means thresholds and overrides should be justified in the context of the fund, not copied mechanically across products. The governance record should show who owns the methodology, who approves changes, how exceptions are escalated and how the fund manager checks that investors were treated fairly.

Retrospective review

At least annually, a fund manager must review its decisions on the application of anti-dilution mechanisms and assess the extent to which those decisions produced fair outcomes for all unitholders. This review should be more than a policy attestation. A useful evidence pack would compare estimated and realised costs, identify occasions when a tool was or was not activated, analyse overrides and threshold breaches, and document lessons for methodology or governance changes.

2. Asset-liquidity assessment without the listed-asset presumption

The FCA is removing the assumption that a transferable security is sufficiently liquid simply because it is admitted to trading on an eligible market. Fund managers should instead assess the quality of secondary-market activity and the fund’s ability to transact in the position within an appropriate horizon.

Relevant factors include trading volume over a reasonable period, the number and quality of intermediaries or market makers, the size of the fund’s position relative to average daily volume, the time likely to be required to buy or sell the security and the proportion of scheme property represented by the position. 

As a practical first step, fund managers should identify and document affected funds, pricing structures, dealing terms, delegated activities and depositary touchpoints. This documentation should be linked to instrument-level liquidity evidence, with defined data owners and conservative fallbacks for stale, sparse or modelled inputs.

3. Liquidity stress testing becomes a governed decision framework

The FCA is introducing Handbook guidance on liquidity stress testing for UCITS schemes, covering normal and exceptional conditions. The guidance addresses model design, governance and escalation, testing frequency, asset and liability stresses, reverse stress testing, investor behaviour and concentration, and the role of depositaries.

An effective programme should therefore test more than an isolated asset-sale scenario. It should combine plausible redemption shocks with stressed bid-ask spreads, reduced market depth, longer liquidation horizons and investor concentration. Reverse stress testing should identify the flow or market conditions under which the fund could no longer meet redemption terms without unacceptable investor harm or disorderly sales.

Implementation should include back-testing of swing factors, levies or dual-pricing spreads and scenario testing across representative funds and investor-flow patterns. Clear ownership, approval authorities, escalation triggers, override controls, validation frequency and depositary engagement should be built into the stress-testing framework.

How S&P Global Market Intelligence can support implementation

S&P Global Market Intelligence liquidity analytics can support the data and modelling layer needed to estimate bid-ask spread effects and market impact across fixed-income and equity portfolios. By combining quote-based liquidity parameters, including volumes, price ranges and bid-ask spreads, with simulated liquidation costs, the analytics can help fund managers quantify cost as a function of trade size and time horizon under both base and stressed conditions.

In an FCA implementation context, this can support two connected use cases: instrument-level liquidity assessment and liquidity stress testing. The regulatory responsibility remains with the fund manager, so third-party analytics should sit within a governed framework covering methodology approval, data quality, model limitations, overrides and retrospective validation.

Conclusion

PS26/17 raises the standard from having liquidity tools available to showing that they are appropriately calibrated, consistently governed and effective in protecting investors. The most important implementation challenge is integration: flow data, asset-level liquidity, transaction-cost models, pricing decisions, stress tests and governance records must work as one coherent control framework. Authorised fund managers that use the period before 1 February 2027 to test that chain end to end will be better placed to demonstrate fair treatment, credible liquidity management and operational readiness.

Important notice

This article is for information and discussion purposes only and does not constitute legal, regulatory or investment advice. Firms should review the final FCA rules, applicable Handbook provisions and their own circumstances, and obtain professional advice where appropriate.