Glass view of RPC building.

UCIS - unregulated and misunderstood

27 April 2011

The FSA's thematic work on UCIS has reached the enforcement stage, demonstrating the FSA's focus on those that misunderstood the promotion rules.

The inevitable overlap with suitability considerations makes UCIS a thorny subject.

In July 2010, the FSA published its project findings on issues surrounding the sale of UCIS.  This was followed by a speech in December 2010 by Linda Woodall, Head of Savings and Investments, who raised the FSA's three main concerns relating to UCIS transactions which included:

  • Firms' lack of awareness of the statutory restriction on the promotion of UCIS and the exceptions that customers had to fall within before UCIS can be promoted to them
  • Firms' lack of understanding of the UCIS market and its risks
  • UCIS appeared to be promoted and recommended to customers who were not eligible for this type of  investment.

On 14 April, IFA firm Specialist Solutions plc was fined £35,000 by the FSA for failures in relation to both the promotion and suitability of advice to clients in respect of UCIS.  This followed the Clark Rees LLP cases in January in which the two partners were fined a total of £28,000 and banned from performing senior roles and also from selling UCIS to customers for two years.

Section 238(1) of FSMA provides that an authorised person must not communicate an invitation or inducement to participate in any collective investment scheme, subject to a number of exemptions which can be relied upon by authorised firms which are set out in Promotion of Collective Investment Schemes (Exemptions) Order 2001 (as amended) and COBS 4.12.  Exemptions include certified HNW individuals, sophisticated investors, and professional clients.

In the wake of the Specialist Solutions fine, Tom Spender, the FSA's Head of Retail Enforcement stated in the FSA's press release, "Failure to give suitable advice around the sales of complex investment products is unacceptable as it puts consumers at real risk of financial detriment – we expect firms to be able to demonstrate that they give their customers appropriate, well considered advice".