December 9, 2019

The issue of liquidity mismatch will be under the investor and regulatory spotlight in 2020

Following the high profile issues in 2019 affecting open-ended investment funds, the potential risks arising from a liquidity mis-match where the fund's assets are not sufficiently liquid to meet the redemption requirements will continue to raise issues for Financial Lines insurers in 2020.

Following the FCA's introduction of new rules for funds investing in inherently illiquid assets, and the tussle between the EU and UK regulatory authority over whose regulatory regime was to blame for 2019's "liquidity crisis", fund managers and platform providers can expect additional regulatory scrutiny over the effectiveness of their liquidity management.

IFAs who do not consider liquidity issues when advising on suitability are also exposed to potential claims and regulatory attention. As investors wake up to the potential for liquidity risks, claims professionals will be alive to the potential for "contagion risk" and underwriters will also be assessing what questions they need to ask fund managers and IFAs regarding their management of liquidity risk.

Read the rest of our insurance predictions here.