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UK FCA Releases Consultation Paper 22/8 on ‘Side Pockets’ in relation to affected assets in the Russian-Ukrainian invasion

29 April 2022

The UK FCA released a consultation paper that examines the potential use of side pockets for assets affected by the Russia-Ukraine crisis.

The Russian invasion of Ukraine on February 24, 2022, has affected financial markets in many ways. Some securities, including some Ukrainian assets, have become illiquid or untradeable. The normal mechanisms for determining accurate and reliable valuation for some securities have either become difficult or stopped completely, and the UK FCA has therefore proposed the potential use of ‘side pockets’ for investments impacted by the war.

The key points addressed in the consultation included:


Affected assets definition

  • equities and fixed-income securities issued by governments, public authorities and corporates in Russia, Belarus and Ukraine and securities listed, offered, or placed in those countries
  • assets listed and traded on other stock exchanges and backed by such securities, for example depositary receipts
  • securities issued by companies whose operations are particularly severely affected by the current situation, or which are owned or controlled by individuals who are the subject of UK or international sanctions relating to Russia
  • units in other collective investment schemes that have suspended dealings because of exposure to such assets

Scope of Russian sanctions

Proposals apply to investments that are subject to financial sanctions relating to Russia under the applicable regimes in the United Kingdom, other G7 countries and the European Union.

Current impediment to affects assets

Where the affected investments are a significant proportion of the fund’s assets, some funds have suspended dealing. This means that investors are unable to further invest or to redeem their units.

FCA proposal-side pockets

The proposal would be to allow authorised fund managers (AFM) to structure the fund using separate new classes of units to hold the affected investments, referred to as side pockets.

Benefit of side pockets

Side pockets could allow:

  • new investors to enter the fund without sharing the exposure to the affected investments
  • existing investors to sell the units which relate to assets that are not affected investments
  • some funds to end their current suspension of dealing

Duration and limited scope of proposals

The proposed rules are a limited emergency measure to deal with the impact of the Russian invasion of Ukraine. The current proposal is not intended to be a longer-term regulatory change.

Side pockets would only be available for:

  • non-UCITS retail schemes (NURS)
  • UK authorised retail funds that hold affected investments which are subject to sanctions, or for which there are no accurate, reliable, and regular prices


The consultation also sets out proposed implications for unitholder approvals, costs and charges, investor communications and transitioning to the side pocket arrangements.


Consultation ends on May 16, 2022.


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