Enough already: do the FCA’s new rules on UCIS risk inducing compliance fatigue?

Enough already: do the FCA’s new rules on UCIS risk inducing compliance fatigue?

The UK Financial Conduct Authority has set out new rules on unregulated collective investment schemes (UCIS) and ‘close substitutes’ in relation to ordinary retail investors in the UK. Tamasin Little, Partner in the Financial Markets team at SJ Berwin, considers the impact of so many overlapping regulations in this area.

Promotions of risky and complex fund structures will be restricted to knowledgeable investors and high net worth individuals under new rules from the FCA banning the promotion of UCIS and certain close substitutes—together to be known as Non-Mainstream Pooled Investments (NMPIs)—to the vast majority of retail investors in the UK. The ban follows work undertaken by the Financial Services Authority (FSA) which found only one in every four advised sales of UCIS to retail customers was suitable, and many promotions breached the existing UCIS marketing restrictions.

What are the main changes being made in this area?

The changes made in PS 13/3 will restrict marketing to retail investors even more tightly and extend the restrictions to a wider range of products which the FCA is calling ‘non-mainstream pooled investments’ (NMPI).

The new category of NMPI will include, in addition to all UCIS, units in qualified investor schemes (QIS), traded life policy investments, securities issued by special purpose vehicles (SPVs) and any form of rights to or interests in any of these types of investment. As well as the well-known and longstanding difficulty of the definition of a UCIS the FCA is now adding new uncertainties since its definition of a ‘special purpose vehicle’ was originally designed to refer to securitisation vehicles in a regulatory capital context rather than to define products in a retail investor protection context.

There have, however, been significant changes to the original proposals made by the FSA. Shares in venture capital trusts, REITs, companies which would qualify as investment trusts if they were based in the UK and a restricted range of exchange traded products have been excluded from the definition of NMPIs as well

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