VCTs escape as watchdog bans risky investments

Buying into an exotic product like timber or wine is now off limits

The world's timber trade has been touted as one of the investments of the future and attracted £4bn-worth of funds in the UK alone – but similar promotions have ended in disaster (Getty Images)

It may be bolting the stable door after the horse has bolted but the UK's financial watchdog has finally decided to ban the promotion to the public of high-risk unregulated investments. The Financial Conduct Authority will stop riskier and complicated fund structures that can invest in more exotic areas, like timber and wine, being offered to the vast majority of people.

The ban on marketing these so-called "Unregulated Collective Investment Schemes" and similar products follows research which shows that only one in every four advised sales of these Venture Capital Trust investments were actually suitable.

The watchdog said a number of these types of products have completely failed in recent years, seeing investors lose all their capital. Sales of these complex funds and similar products to retail investors have hit around £4bn in the UK, the FCA said.

However, many have lost millions of pounds by falling victim to high-risk toxic investments like the traded life policy investments previously offered by the defunct firm Keydata.

"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," says Christopher Woolard at the FCA.

"We believe these rules should go a long way in helping to protect the majority of retail investors in the UK from inappropriate promotions while allowing the industry to market these risky, unusual or complex investment propositions to experienced investors."

Yet there has been debate over the investments the watchdog should clamp down on and some were concerned outright bans would unnecessarily limit product choice. But the FCA has clarified that the ban does not affect exchange-traded products, real estate investment trusts, venture capital trusts or enterprise investment schemes, as well as types of overseas investment companies.

Mark Dampier at Hargreaves Lansdown welcomed the move to exclude VCTs, as they "are effectively like investment trusts and a ban would've been strange."

Emma Dunkley is a reporter at Citywire.co.uk