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Firms’ compliance team must approve each Ucis financial promotion

FSA Sky 480

Each financial promotion recommending investment into an unregulated collective scheme will have to be approved by firms’ compliance departments as part of new FSA proposals governing the sale of Ucis.

The FSA has published its review of Ucis rules which calls for a ban on the promotion of Ucis and similar products to the vast majority of retail investors in the UK, as revealed by Money Marketing this morning. The FSA is is consulting on the ban.

Under the proposed rules promotions will generally be restricted to sophisticated investors and high net worth individuals.

The regulator says currently Ucis can be promoted to ordinary retail investors where the adviser has assessed the product’s suitability.

The FSA says its supervisory and enforcement work suggests restrictions on the promotion of Ucis are “widely misinterpreted, poorly understood and sometimes simply ignored”.

The regulator cites work it carried out on Ucis in July 2010 which found that one Ucis sale out of four appeared suitable for the customer.

The FSA says the significant risk of consumer detriment caused by Ucis “demands action”. It says its work has identified consumers have been encouraged to invest in pooled investments based on assets such as traded life settlements, fine wines, crops and timber.

It cited the example of an 88 year old woman being advised to switch 70 per cent of her investments from mainstream bonds, totalling nearly £1m, into two Ucis funds.

The rules will allow Ucis to be recommended where clients are sophisticated investors, defined as retail clients with extensive investment experience and knowledge, who are better able to understand the risks of complex and unusual investments.

Ucis can also be promoted to high net worth indiviudals, such as those with an annual income of more than £100,000 or investable net assets of more than £250,000.

In addition to the ban on promotion of Ucis, the FSA says: “We are proposing a rule requiring firms to maintain a record of the basis on which the promotion has been made and requiring distribution firms to ensure their compliance of each financial promotion for products within the scope of this consultation, including financial promotions in the context of advised sales, with the marketing restriction rules.”

The FSA has also dropped proposals to introduce new permissions for firms to promote or sell Ucis or similar products.

The FSA says introducing new permissions would result in high costs for all distributors as it would mean changing existing permissions for all firms that hold permissions relating to arranging and advising on investments. The FSA says: “At present, we do not believe it is necessary to impose these costs on the industry. We may revisit this decision, however, if the quality of promotions and of resulting sales does not improve.”

The regulator has also sidelined proposals to introduce additional qualification requirements for advisers that want to sell Ucis.

It says: “Given our other proposals aim to reduce the retail exposure to these products, we do not expect demand for such a qualification to be sufficient to justify any qualification body developing an exam for it.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. And there’s me thinking any financial promotion had to be approved by compliance.

    The problem here is that in a lot of IFA practices the compliance department is the marketing department which is the IFA themselves.

    Maybe thats why the FSA wants to get rid of IFAs.

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