The FSA has warned IFAs about the regulatory dangers surrounding unregulated collective investment schemes, with 11 firms facing restrictions in this area.
The regulator says its research of 185 IFA firms has led it to conclude that the vast majority are not aware of their regulatory responsibilities in this area. The FSA says many advisers wrongly believe that as UCIS are not regulated by the FSA, FSA rules do not apply. The FSA says the advice is regulated even if the scheme is not.
The study found some IFAs are promoting these products to members if the public, despite the restrictions surrounding this.
The FSA says its study found poor quality advice and poor risk management procedures to check whether customers are eligible to be sold a UCIS. In 74 per cent of cases, the regulator found evidence of unsuitable promotions to customers. In 52 per cent of cases the suitability of advice was unclear and in 22 per cent it was unsuitable.
A UCIS is a scheme where customers’ money is pooled together to invest in a range of different enterprises.
So far 11 firms have stopped advising, arranging or otherwise promoting UCIS because of variations to their permissions. These firms are now required to appoint skilled persons to review their promotion of UCIS.
Four of the 11 will have to appoint a skilled person to review their quality of advice. Discussions are ongoing with the enforcement division about whether further action will be taken against three of these four firms.