The Financial Services Authority, now the Financial Conduct Authority, has issued a total of 22 final notices and four decision notices in relation to unregulated collective investment schemes (UCIS) failures since December 2010.
It has also heavily fined a number of firms and cancelled their permissions, as well as taking action against a number of individuals. Its website says: “We will continue to take robust action to protect consumers and deter firms from breaching our rules.”
Part of that robust action was its final rules on UCIS promotion, issued on Tuesday, which confirmed a ban on their sales and marketing to the vast majority of retail investors in the UK.
The FCA said its rules would mean promotions of these “riskier and often very complex fund structures” would generally be restricted to more suitable sophisticated investors and high net worth individuals.
For the greater good?
Units in qualified investor schemes, traded life policy investments, units in UCIS, and securities issued by special purpose vehicles pooling investment in assets other than listed or unlisted shares or bonds all made it on to the FCA’s list.
However, venture capital trusts and enterprise investment schemes (EIS) escaped - news which was warmly welcomed by specialist investment providers such as Kuber Ventures.
It said that for every adviser who had recommended EIS there were “another five who didn’t due to concerns about the outcome of the FCA’s decision” and went on to predict £2.5bn could flow into EIS on the back of the FCA’s ruling.
Pinsent Masons financial regulation team partner Monica Gogna had a different overall view on the move.
She said: “The question remains as to whether, in time, this willingness to ban products may lead to a real block on product innovation, which can also potentially cause detriment to the consumer.”
CMS Cameron McKenna lawyer Simon Morris went further: “This is the FCA’s first concrete step towards the nanny state where investors can only be offered products that it deems ‘safe’ or mainstream.”
He added: “There is little evidence that advisers were systemically selling unregulated schemes. The few instances of mis-selling and of scheme promoters failing tell us more about the quality of FSA’s supervision than about problems with these products. This step de-skills advisers, now all duly qualified after RDR, and diminishes the service they can offer to their clients.”
But the regulator was clear on its position: the rules strike the right balance between protecting consumers and giving the industry freedom to market products to the right investors.
The watchdog also vowed to continue to review market developments and act accordingly. If necessary, the FCA said, it can make a temporary product intervention rule without consultation.
You have been warned.
Deputy editor, IFAonline.co.uk (Scott Sinclair is away)
Lack of innovation for solutions
Some 2,000 consumers affected
Achievements, charity work and other happy snippets
Appetite has suffered since Brexit vote
'Failure to pay attention can result in enforcement'