The governor of the Bank of England, Mark Carney told MPs that investment funds that cannot be easily sold and offer instant withdrawals are “built on a lie” following the Neil Woodford saga.
The liquidity mismatch poses a risk to the financial system here in the UK and worldwide, he told the Treasury select committee, “This is a big deal. You can see something that could be systemic.”
“These funds are built on a lie, which is that you can have daily liquidity for assets that fundamentally aren’t liquid.
“And that leads to an expectation of individuals that it’s not that different to having money in a bank.”
He told MPs that together with Sir John Cunliffe they had both been trying to seek to raise the issues of liquidity mismatches since 2015.
Regulations need to change in order to prevent such investment funds offering investors a prospect of instant access to their money.
Carney added, “If we can’t get the world to move on it, we’ll have to take our own responsibility here in co-ordination with the FCA (Financial Conduct Authority).
“We do have to be very deliberate about the types of measures that need to be taken, something that better aligns the redemption terms with the actual liquidity of the underlying investment is infinitely preferable to the situation we have today.”
Woodford fund was worth almost £10bn in 2017, this have now plummeted to around £3.5bn and £4bn.
The FCA has since launched an investigation.