RegulationJun 4 2013

FCA reprieve for EIS as final Ucis rules confirmed

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The Financial Conduct Authority has confirmed its proposed ban of the promotion of unregulated collective investment schemes to retail investors from 1 January 2014, but offered a reprieve to promoters of enterprise investment schemes by leaving them outside the scope of the ban.

Last year, the regulator said it would ban the sale of Ucis to mainstream retail investors. It had been feared at the time that a number of tax incentivised investment products might fall under the scope of the ban, including venture capital trusts, EISs and real estate investment trusts.

The regulator had previously confirmed that it would not seek to include under the ban VCTs or Reits, but said it was still considering the position of EISs.

Many commentators suggested that there was debate going on between the regulator and the government, which has sought to increase the use of EISs and even introduced new Seed EISs to boost funding for smaller businesses.

Some speculated that such debates could be the cause of a number of delays to the publication of today’s (4 June) paper, which was expected earlier this year. The FCA said in May it was delaying publication of the final rules to allow time to “get things right”.

The final rules mean that, in the retail market, promotions of Ucis, which the FCA says are “often riskier and complex fund structures”, will generally be restricted to sophisticated investors and high net worth individuals for whom these products are “more likely to be suitable”.

EISs and Seed EISs will not be included, except where they are “structured as unregulated collective investment schemes”. As expected, VCTs and Reits are also excluded, as well as exchange traded products and overseas investment companies that could be considered investment trusts if based in the UK.

Christopher Woolard, director of policy risk and research at the FCA, said: “Consumers have lost substantial amounts of money investing in Ucis and similar products in recent years so the need to introduce new rules to prevent this from continuing was essential. However, we have also taken into account that for some investors these products can still be appropriate.

“We believe today’s rules strike the right balance. They should go a long way in helping to protect the majority of retail investors in the UK from inappropriate promotions while allowing the industry to market these risky, unusual or complex investment propositions to those experienced investors for whom they could be suitable options.”

The regulator is also monitoring the market for newly-introduced non-pooled investments including contingent convertibles, building society deferred shares and similar instruments. The regulator said it will consult separately on rules concerning these products.