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BoE Was Cautioned By The FCA Over Property Fund Risks

Bank of EnglandUK’s central bank, the Bank of England (BOE) has defended its actions in the lead up to the EU referendum vote last month against claims that it had not acted impartially on the matter by not offering balanced analyses of the impact of Brexit.

In response to questions from the parliament’s Treasury select committee, Richard Sharp member of the BoE’s Financial Policy Committee (FPC) said that central bank had merely assessed the potential risks faced by UK in event of a vote to leave the EU. BOE governor Mark Carney echoed the views saying that the bank’s reports had not exaggerated or used phony forecasts, or conferred with Chancellor George Osborne beforehand.

The BOE had released a report in May saying that exiting the EU was the biggest risk facing the UK which could force the country into a recession. In a statement Carney said

“The views are not based on whim and prejudgment but on careful analysis and assessment. We have an obligation to make these assessments. If we view something as the biggest risk to financial stability, we have an obligation to parliament and to the people of the UK to make that clear.”

Carney said that while the accuracy of assessment could be questioned, there should be no question of whether the institution should have conducted an assessment. The Financial Conduct Authority (FCA) had warned the BOE before the referendum that property funds could possibly prevent movement of investors’ money in case of a Brexit vote. The warning was borne out when property funds from companies like Standard Life and Aviva blocked redemptions earlier this month.

Andrew Bailey, the new head of the FCA said that such measures were part of the funds’ design adding that it might now need a relook. The FCA has since issued guidelines to asset managers of such funds to remove the gates and allow investor redemptions, while ensuring that all investors are treated equally.

There has been ongoing concern around the lack of liquidity for these funds. BOE officials have highlighted that these funds most often do not have assets that can be sold quickly and provide same-day redemptions to investors.

The central bank had highlighted earlier in March that commercial real estate investments and transactions in the UK had slowed down in first quarter of this year. Transactions were down 34 percent or by £6 billion over same period last year, with the London market being the worst hit declining by 53 percent.

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