What you need to know about Ucis

The Financial Services Authority (FSA) has revealed that advisers and compliance consultants have struggled to grasp the rules on the promotion of unregulated collective investment schemes (Ucis) in its thematic review of advice on the products.

The news that five firms have carried out skilled person reviews of the promotion of Ucis has highlighted how much confusion exists. Streets Financial Consulting, PK Financial Planning, Lupton Fawcett, Chancery IFA and Pave Financial Management have all stopped advising on Ucis after changes to their permissions. The FSA focused on the promotion and advice surrounding Ucis, rather than the schemes themselves.

What lessons can advisers learn from the review?

Is the investment regulated?

Advisers must know whether the investments they are advising on are regulated or not. A classic mistake is to assume that a fund domiciled overseas is a regulated collective investment scheme (CIS) and not a Ucis because it is regulated in its home country.

‘It may be regulated in the Caymans or Luxembourg but it is not regulated by the FSA, so it is an unregulated collective,’ said Phil Billingham, strategy consultant at Threesixty. ‘What makes something an unregulated collective investment is not how it is badged, but how it behaves,’ he said. ‘The FSA has the power to decide what is a Ucis.’

Authorised firms are prohibited from promoting Ucis under the Financial Services and Markets Act. In its guidance note on the schemes, the FSA interpreted ‘promotion’ to include everything from a conversation to mail shots and information posted on a website.

Do client exemptions apply?

However, the Conduct of Business rules section 4.12.1R (4 ) carves out exemptions from this prohibition for eight categories of investors. These exemptions include clients who have invested in an Ucis for longer than 30 months, investment professionals and sophisticated investors.