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FSA Ucis promotion ban will see distributors plummet

FSA Letters 480

The FSA’s proposal to ban the promotion of unregulated collective investment schemes to most retail investors could see the number of advisers recommending the schemes plummet from 3,000 to 250.

The regulator published its review of Ucis rules last week. It is consulting on imposing a ban on the promotion of Ucis and similar products to retail investors unless they are sophisticated, high net worth individuals.

The ban would cover what the FSA calls “non-mainstream pooled investments” including Ucis, qualified investor schemes, securities issued by special purpose vehicles, and traded life settlements. Some structured products linked to non-mainstream assets would also come under the ban.

Currently Ucis rules state schemes should not be promoted to the public unless they meet specific exemptions. But authorised firms can promote Ucis to retail investors for whom they have deemed the product to be suitable.

The FSA is proposing to remove the suitability exemption as many firms rely on this to promote Ucis to retail clients where advice is given. The regulator says this is a “particular weakness in the current regime which must be addressed”.

The regulator has included QISs, special purpose vehicles and traded life settlements to ensure there is a level playing field between Ucis and other similar products.

The FSA estimates there are between 1,000 and 3,000 distributors of Ucis and similar products to retail investors. It expects its proposals to reduce this to between 250 and 750 firms.

Firms face one-off costs associated with the proposals of up to £33m and ongoing costs of £1.1m a year. The cost include systems to categorise investors, ensuring financial promotions are compliant, record keeping, amending literature and additional training.

The FSA estimates it spends £400,000 a year tackling problems in the Ucis market and has imposed fines totalling related to Ucis failures of over £300,000. It wrote 250 supervisory letters to Ucis providers and distributors in June for details of their systems and controls and how they are complying with Ucis promotion rules. The FSA says it is reviewing responses and will take “strong action” where it sees risks to consumers.

FSA acting director of policy, risk and research Gavin Stewart says: “Ordinary investors are being exposed to significant potential for large losses on what are often esoteric and illiquid investments. This situation needs to change so we are acting now to prevent these products being marketed to ordinary retail investors in the future.”


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