FSA: Existing Ucis customers could lose out
Regulator admits new rules could lead to increased costs and liquidity problems for existing Ucis clients.
Investors with money already in unregulated funds could suffer detriment through liquidity issues and delays to redemptions, the FSA has admitted.
It is the first time the regulator has acknowledged such risks, in spite of a similar ban on the sale of life settlements funds triggering the suspension of the EEA Life Settlements fund last year.
In its consultation paper on a proposed ban on sales of unregulated collective investment schemes (Ucis) to retail investors, the regulator said investors could lose out even before the rules come into force.
The FSA said: “There is a risk that existing customers may react to the consultation and request redemptions that may in turn lead to liquidity problems and, possibly, to capital losses for customers.”
The admission comes eight months after the FSA’s publication of a similar ban on the sale of life settlements products triggered a wave of redemptions from the Guernsey-based EEA Life Settlements fund, leading to the fund’s suspension from trading. Investors in the fund are still unable to withdraw money.
“In the short term, at least, this may lead to liquidity issues for some products where new investment is reduced but outgoings continue,” the FSA said.
“Existing customers in these products may find that there are delays, costs or other difficulties in accessing funds... due at least in part to the illiquid investments often held in non-mainstream pooled investments.”
However, the FSA emphasised that it had not banned advisers or distributors from providing ongoing services to clients already invested in Ucis. Advice to hold or sell Ucis is unaffected, but advice to top up or otherwise increase exposure to Ucis will be affected.
Responses to the FSA’s consultation must be submitted by November 14. Final rules are expected in the first quarter of 2013.