The Financial Conduct Authority is to change its rules on long term investment funds to require investors to give 90 days notice before accessing their money.
In return, investors will get much greater certainty they will receive their money on time when they make a withdrawal request from long term investment funds, such as property funds.
The regulator says the move will help give people "more confidence" to invest in funds that support private markets.
In recent years several funds, particularly property funds, have suspended withdrawals at short notice once liquidity came under strain, leaving some investors temporarily stranded.
The new rule on 90 days notice means fund must be clearer from the start about how quickly investors can get their money back and whether the fund is right for their needs, the FCA said.
Currently some of these long term funds allow people to take money out daily with no notice period. During periods of stress or volatility there is a risk that some funds may suspend all payments due to lack of available cash. Some are also holding extra cash, leaving less invested in their intended assets, the FCA said.
Rushed sales can lower prices and harm investors who stay invested and put pressure on markets, the watchdog says.
The regulators says the new notice period would give managers time to sell assets in an "orderly way" and make liquidity-driven suspensions less likely.
Existing funds would have 2 years to comply and give investors at least 1 year’s notice. The proposals bring the UK into line with new international liquidity standards for open ended funds, according to the FCA.
Michelle Beck, director, markets, at the FCA, said: “Funds should be clear about whether they offer quick access or are built for longer-term investments like property. Our rules will help firms make that clearer and give the market more confidence to invest.”
• FCA consultation paper. The FCA is asking for feedback on the proposals by 11 December. The consultation covers authorised fund managers of non-UCITS retail schemes, known as NURS.