The FCA’s new rules impose restrictions on marketing Ucis but also include similar investments under a new definition of non-mainstream pooled investment. While the scope of the definition of non-mainstream pooled investment is narrower than initially suggested by the FSA when it mooted the ban on marketing Ucis and close substitutes, the changes will still have significant impact. This is because the Ucis restrictions are extended to new categories of investment which are not Ucis, such as traded-life policies and securities issued by special purpose vehicles.
Take for example the inclusion of securities issued by SPVs as NMPIs. Up to 1 January 2014 a structured security issued by an SPV would not actually be restricted from sale to retail although there would always be questions about suitability/appropriateness and understanding of risk. By contrast, post 1 January 2014 it will only be possible for financial advisers and managers to promote such a security to retail if the assets being pooled within it are limited to shares and/or bonds. Instruments which expose the investor to speculative or exotic assets such as gold or forestry assets will be NMPIs and can only be marketed to “permitted recipients” under the new Cobs 4.12.
Products which are NMPIs can only be marketed to permitted recipients as follows:
• Replacement products and rights issues - existing participants or holders of an NMPI can be marketed an NMPI which is intended to absorb or replace that NMPI or which is part of a rights issue. This is similar in effect to current category 1 from Cobs 4.12 with the significant exception that it will no longer be possible for a firm to market to a person a scheme solely on the basis that its underlying property and risk profile are substantially similar to that of a scheme in which the person is already invested or was until recently invested.
• Certified high net-worth investors - can be marketed any NMPI likely to be suitable for them based on a preliminary assessment of their profile and objectives.
• Eligible employees – can be marketed investment in their employer, as currently.
• Non-retail clients – any NMPI can be marketed to this category of customer if it is an investment in relation to which the client is categorised as professional or eligible counterparty.
• Certified sophisticated investors – any NMPI can be marketed.
• Self certified investors – any NMPI considered suitable on a preliminary assessment of the client’s profile and objectives.
• Solicited advice – any NMPI provided the client has requested a personal recommendation for advice on the merits of advising in that NMPI and has not previously received a communication or promotion influencing that person.
