Everybody knows the dark side of unregulated collective investment schemes (Ucis): a hotel complex on an exotic island promising returns beyond your wildest dreams; a fascinating forestry project that sounds a bit too good to be true; an 88-year-old who struggles to withdraw the money she put into an illiquid project.
But few would imagine these scenarios with enterprise investment schemes (EISs) or venture capital trusts (VCTs). Instead, these vehicles are widely perceived to support small UK businesses alongside offering some tax relief.
A recent consultation paper, however, has ruffled feathers in the industry, with the possibility that EISs and VCTs could be included in the ban on marketing Ucis to retail investors.
A different beast
The whole process started with the FSA proposal to ban the promotion of Ucis and ‘similar products’ to ordinary retail investors. While few were surprised at the regulator targeting Ucis, the definition – or lack thereof – of ‘similar products’ has caused a stir.
Consultation paper CP12/19, published on 22 August 2012, proposed certain products should only be marketed to “sophisticated and high-net-worth individuals for whom the products are likely to be more suitable”. It closed on 14 November and the FSA is expected to report back in early 2013.
The aims of the paper are laudable enough; the regulator wants to prevent the detrimental effects of unsuitable investments ending up in the wrong hands. But the industry has reacted strongly to the possibility that VCTs and EISs could qualify as ‘similar products’ under the FSA ban.
The FSA wants to prevent the marketing to ordinary retail investors of ‘Ucis or close substitutes’, which it names ‘non-mainstream pooled investments’ (NMPIs). This includes ‘special purpose vehicles’ (SPVs), which are set up to meet a specific short-term need, such as facilitating a one-off project. Investment trusts and some structured products are specifically excluded from the consultation, but EISs and VCTs are not.
Granting exemptions to some product types and leaving the field open for others has understandably caused concern. The industry has been lobbying the FSA to clarify precisely what it means by NMPI and what does and does not come under its scope.
Who’s in?
