When you can (and can't) recommend UCIS

An IFA has been fined £35k for failures relating to the promotion of unregulated collective investment schemes to clients. So when can (and can't) you recommend UCIS?

It is the latest enforcement action in an FSA clampdown on UCIS advice. Two partners at investment firm Clark Rees were banned and fined £28,000 in February.

Section 238(1) of the Financial Services and Markets Act 2000 generally prohibits the promotion of UCIS by authorised firms.

However, firms may promote UCIS to customers in certain circumstances where there is an exemption provided in the Promotion of Collective Investment Schemes (PCIS) Order 2001 and/or 4.12 of the COBS.

This list is non-exhaustive.

Exemptions under PCIS:

UCIS may be promoted to persons defined as:

Certified high net worth

This person must hold a 'certificate of high net worth', which will be in writing and signed and dated within the last 12 months by both themselves and their accountant or employer.

It must declare that, in the opinion of the signatory, he or she either had an annual income of not less than £100k or net assets to the value of not less than £250k during the financial year immediately preceding the date on which the certificate is signed.

Click HERE for more.

Certified sophisticated investor

This person must hold a certificate in writing (signed and dated by an authorised person within the last three years) declaring he or she is sufficiently knowledgeable to understand the risks of investing in UCIS.

They must also have signed, within the last 12 months, a statement confirming they are a certified sophisticated investor.

Once these requirements have been met, any communication promoting UCIS must, among other things, declare that buying units in a UCIS may expose them to a significant risk of losing all of their investment.

Click HERE for more.

Exemptions under COBS (4.12):

This defines eight categories of persons to whom an authorised person may promote UCIS:

Category 1 - Someone who is currently, or has been in the last 30 months, a UCIS participant.

Category 2 - Someone for whom the firm has taken reasonable steps to ensure that investment in the UCIS is suitable and who is an 'established' or 'newly accepted' client of the firm.

Category 3 - Someone who is eligible to participate in a scheme constituted by the Church Funds Investment Measure (1958), section 24 of the Charities Act (1993) or section 25 of the Charities Act (Northern Ireland) (1964).

Category 4 - Someone who is a current or former officer or employee of the firm (or a member of their immediate family).

Category 5 - Someone who is admitted to membership of the Society of Lloyd's.

Category 6 - An 'exempt person'.

Category 7 - Someone who qualifies as an ‘eligible counterparty' (click HERE) or a ‘professional client' (click HERE).

Category 8 - A person to whom the firm has undertaken an adequate assessment of expertise, experience and knowledge and to whom the firm has provided certain written warnings.

For the full COBS rules on UCIS, click HERE.