The broad interpretations of Ucis rules

John Kenchington

It seems that what first started as proposals by the regulator to curb the sales of Ucis to retail investors could be turning into something more significant, as interpretations of the wording of the proposed ban become increasingly broad.

Products that have been recommended by intermediaries for a very long time – structured products, real estate investment trusts (Reits), venture capital trusts (VCTs) and others – may get caught up in the ban according to the claims, which were first reported by Investment Adviser last August.

All this could eventually lead to a climate in which advisers feel they cannot recommend anything other than ultra-regulated, Ucits-structured, open-ended funds.

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The FSA risks a conflicted approach to product regulation here. On the one hand it has now stated that if a financial adviser wants to refer to himself as ‘independent’ then he must consider the whole of the investment market before making product recommendations.

The spirit of this is surely that choice is good. Clients benefit when a broad range of choices is considered.

But if the FSA also chooses to support these broad interpretations of its Ucis fund rules, thereby banning the sale of vast swathes of the investment industry, then this would be anti-competitive.

Some of these structures – VCTs in particular – offer welcome tax breaks to investors and encourage entrepreneurialism in the UK economy, and it would surely be to the detriment of certain clients if they could not be recommended.

That’s not, of course, to say that there shouldn’t be curbs on the sale of unregulated products.

But let’s be clear here – the Ucis clampdown ultimately comes after certain advisers have persuaded their clients to sell their houses and put the proceeds in dodgy offshore property projects and the like.

Certainly that has to stop, but let’s not let our zeal to prevent detriment lead to other forms of detriment that would be inherent to an anti-competitive regime.

John Kenchington is editor of Investment Adviser