FSA Proposes to Ban Sales of Unregulated Funds to Retail Clients


On August 22, the UK Financial Services Authority (FSA) published Consultation Paper CP12/19 Restrictions on the Retail Distribution of Unregulated Collective Investment Schemes and Close Substitutes in which it proposes to ban the promotion of Unregulated Collective Investment Schemes (Unregulated Schemes) and similar products to most UK retail investors.

Currently, Unregulated Schemes can be promoted to ordinary retail investors after an appropriate suitability assessment by a regulated adviser. The proposals contained in CP12/19 would prevent the marketing of Unregulated Schemes to ordinary retail customers, even in the context of investment advice. Marketing Unregulated Schemes under the proposals set out in CP12/19 would generally be restricted to sophisticated investors and high net worth individuals.

The FSA stated that CP12/19 follows extensive reviews of the sale of Unregulated Schemes undertaken by the FSA, which found that only one in every four advised sales of such funds to retail customers was suitable. In addition, a significant proportion of marketing was in breach of the restrictions in the FSA’s requirements applicable to Unregulated Schemes which permit marketing only where an exemption is applicable.
The FSA stated in CP12/19:

We have found that the majority of retail promotions and sales of unregulated collective investment schemes (UCIS) that we have reviewed fail to meet our requirements, exposing ordinary investors to significant potential for detriment. This demands action. We are proposing to intervene in the market by changing our rules to ban the promotion of UCIS and close substitutes to ordinary retail investors in the UK.

The proposals will not restrict the marketing of Unregulated Schemes to non-retail investors such as professional clients or eligible counterparties.

Responses to the consultation are requested by November 14. The FSA intends to publish a policy statement and final rules and guidance in the first quarter of 2013.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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