The last time the FCA even considered banned anything – life settlement funds in its FSA days – it was met with screams of derision, with intermediaries asking what the regulator was doing when it used subjective, pejorative terms such as ‘toxic’ and ‘high risk’.
In its latest announcement, published yesterday, the FCA gave its final rules “to ban the promotion of Ucis (Unregulated Collective Investment Schemes) and certain close substitutes (together to be known as Non-Mainstream Pooled Investments (NMPIs)) to the vast majority of retail investors in the UK”.
This followed the FSA’s investigation into – to use another subjective, pejorative term – ‘death bonds’, as life settlement funds are also known, that was quickly widened to include all unregulated schemes. The clue as to why is in the word ‘unregulated’…
At the time, VCTs, Enterprise Investment Schemes, offshore investment trusts and other such schemes were caught up in the widened net of a review that subsequently found that only one in four advised sales of Ucis to retail customers was suitable advice.
Now, the FCA has named a number of products that lie out of scope of these new marketing restrictions. These include VCTs, EISs, exchange-traded products, REITs and special purpose vehicles.
Traded-life policy investments are most definitely still in scope.
One explanation of the difference in reaction then and now is the work the FCA has done, the work that is expected for the FCA to have done, and the fact that the rest of the industry expected the FCA to bare its teeth somehow given it only came into being on 1 April, 2013.
This was summed up by Rebecca Prestage, head of policy at The Consulting Consortium, when she said: “The market has failed to respond to years of regulatory updates and good practice guidance and even a series of enforcement cases has not deterred poor practice.
[There have been 22 Final Notices and four Decision Notices in relation to Ucis failures since 2010.]
“As a result the FCA is taking [its] objective of consumer protection seriously and is drawing a line to ensure that ordinary retail investors are protected from further detriment.”
Christopher Woolard, director of policy risk & research, recognises this, adding: “Consumers have lost substantial amounts of money investing in Ucis and similar products in recent years so the need to introduce new rules to prevent this from continuing was essential.
However, we have also taken into account that for some investors these products can still be appropriate.”
Nicola Higgs, a senior associate at Ashurst, emphasised the point, saying: “The final rules mark a sea-change in the approach of the regulator who is now prepared to take early action to limit choice for consumers where it thinks they are not capable of understanding risks inherent in complex products.”
Here are some tips we gave in August last year to work round any ban
For the first time in a long time, the regulator is being taken seriously when it underlines what products can or cannot be promoted to retail investors. It is to be applauded long and loud and, while the trend of making more complex, institutional products available to retail investors continues (as it should) then the FCA should continue to bare its teeth.