FSA warned against wide-ranging Ucis ban

Regulatory experts have warned the FSA against allowing its ban on unregulated investments to extend too far.

The regulator is seeking to prohibit advisers from recommending product structures which may result in investors being placed in illiquid or complex assets, as part of a clampdown on unregulated collective investment schemes (Ucis).

As part of the ban, the FSA is considering including some real estate investment trusts (Reits) as well as some niche forms of investment trusts.

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A spokesperson for the FSA said some Reits would be caught by the ban as it is currently worded depending on their legal structure. The spokesperson emphasised that it was “not a foregone conclusion” that the ban would go through as is.

Tracy Dossett, tax director at BDO, said: “It comes down to the definition in the FSA’s document and what it deems as ‘close substitutes’ for Ucis. Certain Reits could fall into this definition.

“One of the original objectives of Reits was to encourage smaller investors to invest in property. To go from that to the other extreme would be a shame.”

Charlotte Hill, head of financial services and regulation at law firm Stephenson Harwood, agreed that the FSA’s proposed ban could catch more than the unregulated investments it is aimed at.

Ms Hill added: “Another risk is that the ban is so restrictive that people currently using them may lose out. Trying to stamp down on [misselling] could have unforeseen outcomes.”

Trade bodies such as the Association of Investment Companies and the British Property Foundation have been lobbying the FSA in an attempt to ensure Reits and other niche investment trusts are not banned.