BAN ON THE PROMOTION OF UNREGULATED COLLECTIVE INVESTMENT SCHEMES

Have you ever been contacted by someone offering you a fantastic investment opportunity in an exciting ‘untapped’ market? Perhaps this was in some sort of non-mainstream investment like wine or timber or stamps? We get these approaches regularly, and usually get rid of them quickly. Almost all of these are Unregulated Collective Investment Schemes (UCIS).

The Financial Conduct Authority (FCA) has decided to do something about these schemes as they are obviously not suitable for most retail investors. As a result the regulator has published final rules to ban the promotion of these schemes to most retail investors in the UK.

Key points:

  • Why the UK regulator has banned the promotion of unregulated collective investment schemes
  • The types of scheme which are affected

Why has the FCA banned the promotion of unregulated collective investment schemes?

The FCA undertook some extensive research which found that only 1 in 4 of all advised sales of these unregulated collective investment schemes were suitable. This means that 75% of all advised sales of UCIS were unsuitable.  The regulator is rightly concerned over a number of failures of these schemes in recent years where investors lost significant amounts of money.

Here is an extract of the FCA’s policy statement on the issue:

These assets may sometimes appear to offer better returns with less volatility than more usual investment types but they are often actually higher risk investments.  The risks they carry are often esoteric and difficult to assess.  For example, they may be illiquid, difficult to value and prices may be volatile.  Governance controls can also be weaker than on more mainstream investment vehicles, which may increase the risk of product failure and loss of capital for investors.

What types of schemes might be affected

The following are examples of unregulated collective investment schemes:

  • Fine wines
  • Timber
  • Crops
  • Speculative financial instruments
  • Traded life assurance

What should you do if you are approached to invest in an unregulated collective investment scheme?

Our general recommendation is to avoid these investments unless you are a sophisticated and wealthy investor. These investments are not generally suitable for retail investors as they are complex and risky. There are few controls over these investments and they are not subject to the protections of the regulated system such as the Financial Services Compensation Scheme.

For more information see the FCA policy statement.

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Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.

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