By Carly Phillips-Jones

On the 16 March 2022, the FCA announced that it has begun discussions with stakeholders around options to allow UK authorised retail funds to make “exceptional” use of side pockets given the significant practical challenges in disposing of Russian and Belarussian assets in the context of suspensions and extensive global sanctions.

If the FCA proceeds with this, these side pockets would give authorised fund managers the option to separate Russian and Belarussian assets that are difficult to sell or value, from the fund’s other core investments. This could enable:

  • investors to enter a fund without gaining exposure to Russian assets;
  • existing investors to redeem the rest of their investment while illiquid Russian assets remain in the side pocket, in many cases marked to zero, while retaining rights to any eventual value; and/or
  • some funds to end their current suspension of dealing.

The FCA has emphasised that the use of side pockets would be optional and limited in scope only to those assets that are illiquid as a result of the Russia/Ukraine war. The consultation will aim to ensure that any side pockets introduced treat existing, redeeming and subscribing investors fairly, and do not encourage speculative new investments at the expense of these existing investors.

The FCA has welcomed early engagement from market participants, consumer groups and investor representatives to ensure that the rule changes are scoped out fairly and accurately. Please contact the FCA at if you wish to participate.