UK companies across all sectors have struggled with the pace of sanctions changes (see our latest alert here) and dealing with practical implications, particularly where regulations or general licenses may not directly cover certain activities.

Even where activity is not prohibited (or in some cases where it is expressly permitted), many in the market have ceased dealing with Russian and/or Belarussian assets. As a result, the Financial Conduct Authority (FCA) announced that it is working with retail fund managers to permit the use of optional "side pockets" to separate Russian and Belarussian assets which are "difficult to sell and/or hard to value" from the rest of the fund's investments. 

In this way, new investors could enter the fund without exposure to assets that they're not willing to take, while existing investors could exit or redeem from the rest of the investment (leaving the Russian/Belarussian assets in the side pocket).

The precise scope of any "side pockets" and the assets contained within will be determined by consultation with the FCA. Assets in the side pocket should be limited to those that are "illiquid as a result of the Russia/Ukraine war".

Any rule changes will be set out following formal consultation. To progress this formal consultation, the FCA welcomes input from market participants at: amfpolicy@fca.org.uk.