Advising on Ucis: the rules you need to know

Consultancy Styperson Pope has developed guidance outlining how advisers can market unregulated collective investment schemes (Ucis) to clients.

Advisers are allowed to promote Ucis to certain types of clients under two sets of rules, from the Financial Services Authority (FSA) and the Treasury, which both provide exemption from restrictions outlined in the Financial Services & Markets Act (FSMA).

The FSA's Conduct of Business (Cobs) 4.12 rules break down into eight categories the sorts of investors advisers can promote Ucis to without breaching FSMA rules. Styperson Pope said four of these types of investor will be relevant to advisers in most cases:

1. investors judged 'suitable' for an Ucis by their authorised IFA
2. eligible counterparties or professional clients
3. investors subject to an 'adequate assessment' by an authorised firm
4. investors who are already invested in a 'substantially similar' scheme

The Treasury's CIS Exemption Order outlines five types of investor Ucis can be promoted to. They are:

1. Existing investors in the scheme
2. Investment professionals
3. Certain sophisticated investors
4. High net worth (HNW) companies or unincorporated associations
5. An association made up predominantly of HNW companies and sophisticated investors

Independent compliance consultant Simon Webber, who wrote the guide, said IFAs could assess their clients to see if they were suitable to invest in Ucis using both sets of rules.

'The Treasury rules focus on the individual and ignore the advice aspect, while the Cobs rules are more about what the adviser firm can do,' he said.

Webber said if a client was not deemed suitable to invest under the Treasury rules, an adviser could examine whether they would be suitable under Cobs.

Under the Treasury's rules, the investor must qualify for inclusion in one of the categories before the adviser promotes the Ucis.

Webber said this was a crucial failing of advisers. 'The key thing that IFAs did not do was make sure the clients were suitable before making the promotion.'

Webber wrote skilled persons reports for two of the 11 firms required to carry them out by the regulator.