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Regulator bans sales of ‘high-risk’ investment schemes

Laura Miller
Written By:
Laura Miller
Posted:
Updated:
04/06/2013

The Financial Conduct Authority (FCA) has banned the sale of unregulated collective investment schemes to ordinary retail investors.

The predecessor to the FCA, the Financial Services Authority (FSA), proposed the ban back in August.

UCIS are pooled investments in often high-risk, esoteric assets. Investors that put money into them have no recourse to the Financial Services Compensation Scheme (FSCS).

Today the FCA has published rules saying that in the retail market, promotions of these riskier and often very complex fund structures will generally be restricted to sophisticated investors and high net worth individuals for whom these products are more likely to be suitable.

A number of products lie out of scope of the restrictions.

These include exchange traded products, overseas investment companies that would meet the criteria for investment trust status if based in the UK, real estate investment trusts and venture capital trusts.

Enterprise investment schemes and seed enterprise investment schemes, unless structured as UCIS, are also outside the scope of the rules.

The marketing of special purpose vehicles pooling investment primarily in shares and bonds is also not restricted.

Firms still need to ensure promotional communications about these products are fair, clear and not misleading, and if advice is given they must ensure any recommendation to invest is suitable to the client, the FCA said.

Jaskarn Pawar, a chartered financial planner at Investor Profile, said: “I think this has been coming for a while and is in all honesty a disappointing day for those that want to use this type of investment for alternative strategies within a portfolio. I understand why the decision has been taken but the good advisers would always take into account the client’s overall circumstances and need to invest in UCIS before recommending them.

“If a consumer is currently invested in a UCIS then I would suggest getting in touch with their financial adviser to find out what the position is in relation to their fund. If life settlement funds are anything to go by then it could become a bit messy and customers might have to wait before being able to withdraw their money if they wanted to do so.”


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