The following Financial Services practice note provides comprehensive and up to date legal information covering:
This Practice Note explains the exemptions from the financial promotion restriction which are contained in chapter 4.12 of the Financial Conduct Authority (FCA) Conduct of Business Sourcebook (COBS 4.12). COBS 4.12 sets out rules relating to the restrictions on the retail distribution of unregulated collective investment schemes (UCIS) and close substitutes (together defined as non-mainstream pooled investments (NMPIs) to ordinary retail investors. The COBS 4.12 requirements in were introduced on 1 January 2014 through PS13/3: Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes.
The rules in COBS 4.12 aim to protect ordinary retail investors from risks arising from the inappropriate promotion of NMPIs where retail investors are sold products which are complex in nature and present a risk that the 'average' retail investor may not be familiar with or truly understand.
The category of NMPIs includes, in addition to all UCIS, units in qualified investor schemes (QIS), traded life policy investments, securities issued by special purpose vehicles (SPVs) and any forms of rights to or interests in any of these types of investment. They can also sometimes include other investment arrangements which are not necessarily funds. As such, the definition of a NMPI should be considered on a case by case basis.
Firms are therefore required to analyse investments that they may wish to promote in
order to ascertain whether the investment in question falls within the definition of a NMPI. This analysis is increasingly important as the FCA's original definition of a 'special purpose vehicle' was designed to refer to securitisation vehicles in a regulatory capital context rather than to define products in a retail investor protection context. For further information, see News Analysis: New rules for unregulated collective investment schemes.
The table below outlines the products that are subject to the marketing restriction and those that are out-of-scope.
In the UK an authorised person is prohibited from communicating an invitation or inducement to participate in a NMPI under (COBS 4.12.3 R).
The restriction in COBS 4.12.3 R does not apply if the promotion falls within an exemption in the table below:
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