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FSA set to ban Ucis promotion to retail investors

FSA Front 480

The FSA is planning to ban the promotion of unregulated collective investment schemes to retail investors, with promotion limited to sophisticated, high-net-worth individuals, Money Marketing understands.

The regulator is set to publish a paper later today that will put forward proposals to limit Ucis promotion as part of its review into how the schemes can be sold. The paper will cover Ucis and similar products.

The review of rules relating to Ucis has already prompted the FSA to signal a ban on marketing traded life settlements to the vast majority of retail clients. The regulator announced its proposal to ban the promotion of life settlements in a guidance consultation in November and confirmed its intention to consult on the ban in April.

The FSA’s statement in November, which referred to life settlements as “toxic products”, triggered the EEA Life Settlements fund to suspend redemptions.

Ucis rules already state the schemes cannot be promoted to the public unless clients meet specific exemptions, such as if the client can be shown to be a sophisticated investor.

The FSA has taken action against a number of IFAs for failing to ensure Ucis recommendations were suitable and has previously said Ucis are rarely suitable for retail investors. The FSA clarified in June that firms’ independent status will not be compromised by a failure to recommend high-risk products such as Ucis.

Page Russell director Tim Page says: “This has been on the cards for a long time. Hopefully this will put a cap on the kind of schemes we have seen recently that just keep blowing up.”

Last week, Money Marketing revealed investors in the suspended Connaught Income Series 1 Ucis fund could face 50 per cent losses on their investments.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Are the FSA a bunch of clowns? Firstly they spend millions telling us that to be independent post RDR we must consider all products including UCIS, so IFAs across the country negotiate with PI insurers for cover, even if they (like us) have never recommended a UCIS ever, now after the higher premium is paid they say they will be banned for retail investors? We are only 4 months away from RDR – come on FSA talk to us – you really need our help on these yo yo decisions!

  2. David Trenner - Intelligent Pensions 22nd August 2012 at 9:31 am

    Whilst I would not advocate pre-approval as NICE does for drugs, I do think it would be better if the regulator could spot something toxic before it has had a major effect on investors.

    If the regulator moved more swiftly to ban ‘toxic’ products we would all see our FSCS levies reduced!

  3. No change to the current legislation and guidance in that UCIS cannot be promoted to retail investors and only to HNW, Sophisticated investors and Suitable investors as per COBS 4.12

  4. Great news. I know some will say that there are UCIS that do a good job and have a part to play in a diversified portfolio (etc etc, blah, blah, blah), but let’s face facts, too many of these things blow up.

    It will be interesting to see what the definition of a “sophisticated investor” will be and how an individual passes that particular test. Will it be a matter of opinion or fact. Let’s hope it’s based on facts.

  5. I can’t see what’s changing then… is it simply adding the term ‘high net worth’????

    If that’s the case, IMHO most sophisticated investors could well already be HNW in any case so it’s likely to have an impact!

    Not that I’ve used Ucis, but I can’t see that this would change much given that, for most, wealth is relative not absolute and as such, what is HNW and, unless it’s defined, the loophole still remains there?

  6. Hi all.

    It is already the case that UCIS CANNOT be promoted to retail investors.

    Under current regulations UCIS can only be promoted to Sophisticated investors, HNW and those deemed suitable under COBS 4.12.

    UCIS is simply a wrapper as the asset does not fall into the rules set down by the FSA with regards to liquidity and gearing.

    Therefore an IFA should look a the asset and strategy because each product is different. Granted there have been quite a few failure in funds that are classed as UCIS but regulated funds fail too – keydata etc

    Corporate governance is also another major factor

  7. There is an element to this that needs thinking about. With banks wihdrawing from many elements of traditional lending – who is going to fill the gap?

    I am currently consulting for a well established property developer who is constantly approached by similar developers for bridging loans. They have gained an excellent reputation for doing this and now wish to expand their activities by borrowing cash at good rates

    The High St banks have either withdrawn from the market or take so long they might have well done so.

    Customers are willing to pay 12-16% for the money allowing the developer to pay 8% for deposits.

    Everything about this is kosher – top advisers etc

    If we are to see growth in the market this type of investment must be allowed – how do we square the circle?


  8. Terence P. O'Halloran 22nd August 2012 at 11:21 am

    This is a clear case of “if I do not understand it: BAN IT!

    Garry, I could not have put it better, or used a better example.

    There is danger in every financial investment decision. When the fixed interest bond market value drops like a stone will the FSA or its successor regulators ban fixed interest funds from other than sophisticated investors?

    A perfect world does NOT exist. An imperfect and out of touch regulator certainly does exist – at a huge cost to everybody.

    Adam Smith was right in that the markets will sort themselves out if they are left to do so.

    The regulators would do well to heed his words.

  9. @Gary

    This has nothing to do about facilitating business or protecting the consumer — the only thing this is about is PROTECTING THE REGULATOR and RAISING TAX.

    If it was about practical matters such as protecting the consumer a prudential review of the management of these schemes would have weeded out the duds a long time ago, leaving schemes such as the one you have contact with to flourish.

    The FSA always appears to do things in the most clumsy way because it’s mission is not about protecting the public. The FSA’s mission is to facilitate more revenue to be collected by HM Treasury (VAT on adviser fees — the ONLY real motivation for the abandonment of commission which as worked so well for so long) and to increase dependency on the state. The FSA is staffed by socialists and to further the socialist ideal. Anyone who hasn’t tumbled that yet is not living in the real world.

    Love and kisses


  10. Garry Heath asks “who is going to fill the gap?”. I can tell you who shouldn’t; financial advisers. He also asks “how do we square the circle?”. We shouldn’t, it’s not our job. Our job is to provide financial, tax and investment planning, not pretend we are magical business advisers in single strategy or high risk areas.

  11. A further thought….

    When anyone (either individual or body corporate, such as the FSA) demonstrates illogical or irrational behaviour the immediate response should be to question motive.

    Irrational behaviour is normally considered in the context of it being potentially dangerous. The behaviour of the FSA has been irrational (and therefore totally ineffective) in many areas of its remit and yet nobody is questioning MOTIVE.

    These are intelligent (allegedly) people at the FSA. So why is their effectiveness so dire and their offered solutions so impractical? What is the real agenda, what is the true motivation?

    Love and kisses yet again, we must do lunch sometime.


  12. As a distributor of UCIS to IFAs I cannot see what all the fuss is about. Having read the document it is consulting on a change in round terms to the regulation COBS 4.12 only to allow promotion to investors that would qualify under the old PCIS rules as sophisticated high net worth investors. … but that was always the case or should have been, the issue was only that COBS 4.12 was being misapplied (or ignored) and now it can’t at least not after this is put into practice.

    To us this is great news, it takes away all the myth and misunderstanding about UCIS use and does state that where an IFA has such clients, to be whole of market they must “consider” using UCIS. To do that I think that means they must understand them properly without confusion with UCITS, tree or property ownership schemes and the like and if such an IFA does properly understand UCIS it is highly likely they will use them for the correct clients, the way it always should have been.

    I emphasise though as the FSA have stated, they only need to consider UCIS. Whether they use or not largely down to how well we explain what we do which is the again way it should be.

    If an IFA does not have and does not seek such clients, of course there is no need for them to get involved. Probably makes it non-compliant for a network to ban them without banning members from having such clients but that remains to be seen.

    For some, this change may restrict what they were doing but for us it means nothing of what we were doing needed to change. The document is such that there is little if anything in it that wouldn’t be there if we were writing it ourselves…… unless we’ve missed something !

    It seems the FSA have confirmed that UCIS has a place in the planning process for sophisticated HNW investors and whole of market IFAs should consider them for these clients. what more could we ask ?

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