FSA unveils Ucis products crackdown


A crackdown on the promotion of investments in unusual assets such as fine wines was announced by the City watchdog today after it found “high levels” of unsuitable advice being given.

The Financial Services Authority (FSA) wants the promotion of unregulated collective investment schemes (Ucis) and similar products to be restricted to "sophisticated investors" and people who have a high net worth, for whom the products are more likely to be suitable.

The Ucis retail market is worth about £2.5 billion in the UK and some 85,000 ordinary retail investors have direct holdings in investments, which can hold assets like traded life policy investments, fine wines, crops and timber.

Ucis are not subject to the same rules as regulated collective investment schemes, which have certain safeguards such as making sure risk is prudently spread.

While this means that those operating schemes have greater freedom to pursue new or unorthodox strategies, it also means investors are generally placing their cash at a higher risk than more mainstream investments.

The FSA said it has uncovered "high levels" of unsuitable advice being given and warned that ordinary investors are being exposed to significant potential for large losses on products which are clearly unsuited to most people.

Its own research found that only one in every four advised sales of Ucis to retail customers was suitable and took into account the customer's needs.

It said examples of unsuitable advice it had found included pensioners being advised to invest all of their wealth in a single Ucis and a customer who was advised to borrow money to invest in Ucis and service the debt with withdrawals from their investment.

Under current rules, the investments can be promoted to ordinary investors if an adviser first assesses the product's suitability.

But under the watchdog's plans, firms will be prevented from marketing Ucis to ordinary retail customers, even in the context of financial advice.

Gavin Stewart, acting director of policy, risk and research at the FSA, said that if customers believe they have been mis-sold a product they should contact the firm that arranged it and raise their concerns.

If the customer is still not satisfied, they can complain to the Financial Ombudsman Service (FOS) or, if the firm has gone bust, the Financial Services Compensation Scheme (FSCS) could help.

He added: "While we have found problems with a number of sales, we are not saying that all existing investments were mis-sold.

"Existing customers who have questions about their investment may want to contact a financial adviser.

"Advisers will be able to help explain how the investment works, whether it is still right for them and what their options are."

The consultation runs until November 14 and the finalised rules are set to be published early next year.


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