Further enforcement action inevitable over Ucis
Last month the FSA fined an IFA £60,000 for advising his clients to invest in unregulated collective investment schemes.
Last month the FSA fined an IFA £60,000 for advising his clients to invest in unregulated collective investment schemes and other non-mainstream investments, when the products were clearly unsuitable.
According to the FSA, the adviser did not understand the regulatory restrictions on the promotion of Ucis and failed to promote them compliantly. The FSA has banned the adviser from performing any function in relation to any regulated activity in the financial services industry.
Unfortunately, this action is the latest in a string of enforcement cases brought by the FSA concerning Ucis products in recent times.
Although Ucis are not regulated schemes, their promotion and sale is subject to FSA regulation. Similarly, advisers carrying on regulated activities in relation to Ucis, such as giving a personal recommendation to invest in them, are subject to FSA regulation. Ucis cannot be promoted to the general public in the UK and should only be marketed to certain limited categories of investors, such as sophisticated investors and high net-worth individuals.
In October 2009 the FSA informed all small financial adviser firms that it was about to conduct a project focusing on Ucis.
The FSA’s supervision and treating customers fairly assessment work identified issues surrounding the sale of Ucis by small firms. The regulator’s main concerns included:
• Firms’ lack of awareness of regulatory requirements for Ucis.
• Firms’ lack of understanding of the Ucis market and their risks.
• Ucis promoted and recommended to customers who were not eligible for this type of investment.
The project findings were reported by the FSA in July 2010. Firms were unaware of the statutory restrictions on the promotion of Ucis to the general public and in many cases promoted Ucis where this is prohibited. And again there were many cases where firms had sold Ucis to customers for who they were not suitable.
In July 2011 the FSA produced a fact sheet to explain what a Ucis is and the key things that IFAs need to consider if promoting and/or advising on a Ucis. Clearly for some this thematic review fell on death ears, making enforcement action inevitable.
Philip Ryley is a solicitor and head of financial services and markets of Michelmores Solicitors