FSA Consultation Paper on Restricting the Retail Distribution of UCIS

On August 22, the FSA published a consultation paper on restrictions on the retail distribution of unregulated collective investment schemes (UCIS) and close substitutes. CP12/19

In CP 12/19, the FSA outlines proposals to ban the promotion of UCIS and close substitutes to most ordinary UK retail investors. As providing financial advice generally includes making a financial promotion, by limiting the promotion of UCIS the FSA aims to limit the number of retail clients being wrongly advised to invest in UCIS.

Highlights include:

  • changing the financial promotion rules to limit the type of customer to whom firms may promote financial promotions for UCIS and closely substitutable investments;
  • Handbook guidance on the effect of the financial promotion rules on advised sales to clarify that personal recommendations generally amount to a financial promotion and, as a result of the marketing restrictions, advice on a non-mainstream pooled investment may result in an unlawful promotion if no valid exemption is available; and
  • updating the retail investment product definition to clarify the position on advice on UCIS and substitutable products in relation to Retail Distribution Review independence requirements.

Comments can be made on the proposals until November 14.

In keeping with its regulatory objective of protecting consumers, on August 17, the FSA published final notices issued to Richard Rhys and Anthony Adams, both former directors of MNFA Ltd (in liquidation), for their involvement in mis-selling a UCIS. Final Notice for Mr. RhysFinal Notice for Mr. Adams.    

FSA Fines IFA for Advising Clients to Invest in Unsuitable Products

On 30 May 2012, the FSA announced that it had fined independent financial adviser (IFA) Patrick Francis O’Donnell of P3 Wealth Management Limited, £60,000 for advising his clients to invest in unsuitable non-mainstream investments and Unregulated Collective Investment Schemes (UCIS). Non-mainstream investments include, amongst other things, traded life policy investments and unlisted shares. Mr. O’Donnell has also been banned from performing any function in relation to any regulated activity in the financial services industry.

The FSA found that around two thirds of Mr. O’Donnell’s clients invested over 75% of their available funds into UCIS and other non-mainstream investments. Many of his customers received advice that was unsuitable for them. UCIS cannot be promoted to the general public in the UK, and should be marketed to limited people such as sophisticated investors and high net worth individuals. The FSA has previously taken action against a number of firms and individuals in relation to UCIS, including Rockingham Independent Limited, Moneywise IFA Limited and Specialist Solutions Plc. Final Notice for Mr. O’Donnell.