The Financial Conduct Authority has published final rules which will ban the promotion of Unregulated Collective Investment Schemes (UCIS).
It will additionally restrict some close substitutes (Non-Mainstream Pooled Investments -NMPIs) to the vast majority of UK retail investors. The moves follow a long period of consultation by the FCA on concerns that investors were buying UCIS and similar products without understanding the risks.

The FCA says that the rule change means that in the retail market promotions of these riskier and "often very complex fund structures" will generally be restricted to sophisticated investors and high net worth individuals for whom these products are more likely to be suitable.
The ban follows extensive work undertaken by the Financial Services Authority (FSA), which found that only one in every four advised sales of UCIS to retail customers was suitable and that many promotions breached the existing UCIS marketing restrictions. Concerns have also been identified in relation to products which are close substitutes for UCIS and in relation to which the existing marketing restriction had no effect. A number of NMPIs have failed completely in recent years, leading to customers losing their total investment.
The final rules follow a consultation period in which the FCA engaged extensively with stakeholders and received detailed feedback. The majority of respondents agreed with the general aim of the proposals to protect ordinary retail investors from the risks arising from inappropriate promotion of NMPIs. However, the FCA has taken into consideration a number of responses about the definition of NMPIs and refined those to focus more tightly on products posing the greatest risk to ordinary retail investors. The FCA has also considered concerns about requirements applicable to marketing to high net worth or sophisticated retail clients and amended the proposals accordingly.
Following analysis of the feedback, a number of products now lie outside the scope of the marketing restrictions. These include exchange traded products, overseas investment companies that would meet the criteria for investment trust status if based in the UK, real estate investment trusts and venture capital trusts. Enterprise investment schemes and seed enterprise investment schemes, unless structured as UCIS, are also outside the scope of the rules. The marketing of special purpose vehicles pooling investment primarily in shares and bonds is also not restricted. The FCA says that firms still need to ensure promotional communications about these products are "fair, clear and not misleading", and if advice is given they must ensure any recommendation to invest is suitable to the client.
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The following investments will be subject to marketing restrictions: units in qualified investor schemes (QIS), traded life policy investments, units in UCIS; and securities issued by SPVs pooling investment in assets other than listed or unlisted shares or bonds.
The FCA say it will continue to review market developments and if necessary it will make a temporary product intervention rule before consultation.
Christopher Woolard, director of policy risk & research, said: "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. However, we have also taken into account that for some investors these products can still be appropriate.
"We believe today's rules strike the right balance. They 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 those experienced investors for whom they could be suitable options."
The FCA is also monitoring the market in relation to products which are not pooled investments. The industry is beginning to introduce to the retail market a range of novel securities – including contingent convertibles (CoCos), building society deferred shares and similar instruments – that were once exclusively offered to institutional investors, and which carry risks unfamiliar to and inappropriate for many ordinary retail investors. The FCA intends to consult on the introduction of a new marketing restriction in relation to these types of products.
EIS specialist Kuber Ventures says that the policy decision by the FCA on the CP 12/19 consultation paper could open the doors to up to £2.5bn worth of investment into Enterprise Investment Schemes (EIS) each year.
Dermot Campbell, managing partner of Kuber, a multi-manager EIS fund platform, said: "The uncertainty that we have experienced over the last six months has had a critical impact on EIS fundraising. In fact, we estimate that for every adviser who recommended EIS there were another five who didn't due to concerns about the outcome of the FCA's decision. The FCA's announcement has finally silenced all the negative noise and the market can now start to focus on the business at hand."
Guy Myles, managing director of Octopus Investments, said: "We were delighted to hear the outcome of the Financial Conduct Authority's (FCA) review of the promotion of unregulated collective investment schemes (UCIS) today, with confirmation that Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) are among those investments that will remain outside the scope of the ban.
"In making this decision, the FCA has accepted that there's a fundamental difference between what it considers to be risky, unregulated investment products and those it sees as being 'higher risk' in nature, but which already have strong corporate governance measures in place."