The City watchdog said on Wednesday that it could allow retail funds authorized in the U.K. to make use of so-called side pockets — accounts that fund managers use to segregate riskier or illiquid assets.
If approved, the proposal would give fund managers the option to separate Russia and Belarusian assets from the rest of the package if they prove difficult to sell after Western governments approved an array of sanctions against the countries. Belarus has been targeted as Russia's neighbor and ally.
It was not immediately clear how swiftly the FCA will act on its proposals.
"The use of side pockets by the authorized fund manager would be optional, based on acting in the best interests of each fund it manages," the regulator said. The proposals would be "limited in scope to assets that are illiquid" as a result of the war that has followed the Russian invasion of Ukraine.
The "side pockets" will allow new investors to enter funds without taking on exposure to Russian assets.
Existing investors will be permitted to redeem their investment while illiquid Russian assets are held in a separate account. They will retain the rights to any eventual value of those assets if sanctions are lifted, the FCA said.
The FCA said it will consult on the proposals to ensure that managers using side pockets are treating investors fairly. The watchdog does not want to encourage speculative new investment at the expense of existing investors.
"It is the authorized fund manager's duty to ensure that assets are valued fairly and accurately, and that subscriptions and redemptions take place at a fair price," the FCA added.
The Investment Association did not immediately respond to a request for comment.
Chancellor Rishi Sunak said on Monday that asset managers should "think very carefully" about whether their investments are supporting Russia's invasion of its European neighbor.
Several of the U.K.'s largest pension schemes have already taken steps to scale back investments in Russia before its tanks and troops crossed into Ukraine, but many more still have limited assets in the country.
–Additional reporting by Martin Croucher. Editing by Ed Harris.
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