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FSA proposes strict Ucis compliance rules


Advisers will find it increasingly difficult to recommend unregulated collective investment schemes to retail investors as the FSA looks to bring in tough Ucis compliance and reporting rules.

The FSA published its review of Ucis rules last week, which called for a ban on the promotion of Ucis and similar products to retail investors unless they are sophisticated, high net worth individuals.

To support the ban, the FSA wants to introduce a new rule requiring firms to record the exact basis for any recommendation of Ucis or similar products such as qualified investor schemes, securities issued by special purpose vehicles, traded life settlements and some structured products.

Firms will have to set out which exemption or eligible investor category applies and how the firm decided this.

The regulator also plans to require firms’ compliance officers to confirm each recommendation complies with Ucis promotion rules.

Firms can recommend Ucis where certain exemptions apply, specifically where individuals are deemed to be certified sophisticated investors, self-certified sophisticated investors, or certified high net worth individuals.

The FSA says certified sophisticated investors have many years of investment experience including exposure to complex instruments, while self-certified sophisticated investors have to receive specific risk warnings.

High net worth individuals have to meet certain criteria, such as annual income of more than £100,000 or investable net assets of more than £250,000.

Regulatory Legal lawyer Michael Cotter says: “A number of Ucis seem to be collapsing around the same time because no-one has been making sure the necessary safeguards are being adhered to.

“The compliance requirements will be impractical for small firms and introduce another level of complexity before an adviser can recommend a Ucis. Naturally firms will stay away from these schemes as a result, at least in the short-term.”


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