The U.K. securities regulator is banning the marketing of complex investment products involving assets such as wine, crops and timber to most retail investors after consumers lost “substantial amounts” of money.
The sale of the Unregulated Collective Investment Schemes, or UCIS, and several similar products will be limited to high-net-worth individuals and sophisticated investors, the Financial Conduct Authority said in an e-mailed statement today. The move follows an FCA review of UCIS sales where it found only one in four sales to retail consumers was suitable.
“The need to introduce new rules to prevent this from continuing was essential,” Christopher Woolard, the FCA’s director of policy risk and research, said in the statement. “We have also taken into account that for some investors these products can still be appropriate.”
The FCA, since its creation on April 1, has increased pressure on banks to be transparent with consumers. It’s planning new restrictions on marketing products including contingent convertibles, known as CoCos, building society deferred shares and similar products to retail investors.
“This is the FCA’s first concrete step towards the nanny state where investors can only be offered products that it deems ‘safe’ or mainstream,” Simon Morris, a financial-services lawyer at CMS Cameron McKenna LLP in London. “There is little evidence that advisers were systemically selling unregulated schemes.”
After the regulator reviewed feedback from industry groups, it decided to exclude exchange-traded products, overseas investments companies, real estate investment trusts and venture capital trusts, and enterprise investment schemes from the restrictions.
In the review published last year, the FCA’s predecessor, the Financial Services Authority, said it found “high levels of unsuitable advice” and the “potential for customer detriment” in sales of UCIS. Around 85,000 retail investors already have direct holdings in UCIS, it said.