A ban on the promotion of unregulated collective investment schemes (Ucis) has been confirmed by the FCA, applying to the “vast majority” of retail investors from 1 January 2014.
But, in response to industry concern, both venture capital trusts (VCTs) and enterprise investment schemes (EISs) have been exempted from the regulator’s ban.
In its final rules on banning the marketing of Ucis, the FCA said it means promotions of these riskier and often “very complex fund structures” will generally be restricted, within the retail market, to sophisticated investors and high-net-worth individuals - those with an annual income of at least £100,000 or net investible assets exceeding £250,000, for whom the products are more likely to be suitable.
“Consumers have lost substantial amounts investing in Ucis and similar products in recent years so the need to introduce new rules to prevent this from continuing was essential,” said Christopher Woolard, director of policy, risk and research at the FCA.
“However, we have also taken into account that for some investors these products can still be appropriate.
“We believe [the] 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.”
A number of other products remain out of the ban’s scope, including exchange traded products (ETPs), overseas investment companies that could be considered investment trusts if they were based in the UK and real estate investment trusts (Reits).
The move is part of the new regulator’s attempt to control high-risk products after several mis-selling scandals under its predecessor. It is not the first attempt made by the FCA to control unauthorised activities; just weeks after its official formation the regulator issued a series of warnings against companies who were not authorised to carry out regulated activities.
So far, the FCA has yet to accuse any firm of misconduct as part of the clampdown. However, the regulator said consumers who use Ucis should be aware the Financial Ombudsman Service (Fos) and the Financial Services Compensation Scheme (FSCS) would not be available to them in the event of a problem.
Firms will still need to certify that any promotional communications about Ucis products are fair, clear and not misleading and if advice is given, any recommendation to invest must be suitable.
The ban follows the proposed rules outlined by the FSA in August 2012. The regulator said it will continue to review any changing developments and, should it discover any similar issues in the future that pose a risk of significant consumer detriment, it may need to extend the scope of the rules.
Trade bodies and providers have welcomed the restrictions.
