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FSA warns wave of Ucis enforcement to come

FSA warns wave of Ucis enforcement to come

The Financial Services Authority (FSA) is set to take more enforcement action against IFAs who have mis-sold unregulated collective investment schemes (Ucis) before its ban on their retail sale comes into force.

Georgina Philippou, FSA head of retail enforcement, told New Model Adviser® that the regulator’s crackdown on Ucis mis-selling would continue apace with further enforcement actions against firms and individuals in the pipeline.

'There are still a few [enforcement actions] in the pipeline. That's not to say we will succeed in getting final notices on all of them, but there will be more,’ she said.

Jason Pope, technical specialist at the FSA, added that following a recent round of supervision in June 'there might be another wave of these to come.'

In June, the FSA wrote to advisers that had sold Ucis asking for information about their systems and processes as part of its ongoing view of the Ucis market.

This was followed in August by its consultation paper proposing a ban on the sale of Ucis to retail investors.

Philippou (pictured) said the FSA had taken out over 20 enforcement actions so far, with more on the horizon, and that despite the complex nature of the products sold, advisers’ failures were often simple.

‘The conclusions we can take on those actions are while the products might be quite complicated and difficult to understand really the obligations of those we take enforcement against and the obligations of advisers generally are quite simple, which is they must understand what they're selling their customers.’

Philippou said the most recent round of FSA enforcement over Ucis came after the regulator first instigated a thematic review in 2009/2010 but found following this firms were still not advising their clients to an appropriate or improved standard on Ucis.

Pope the regulator was looking at how its proposed clampdown on Ucis sales would impact enterprise investment schemes (EIS), Venture Capitalist Trusts (VCT) and structured products.

He said very few structured products would fall under the FSA’s ‘special purpose vehicle structure’ and it would expect providers to tell advisers when the product is restricted.

He said the clampdown should not rule out the sale of EIS and VCTs to the appropriate clients.

‘The reason we consult is to hear from both firms and consumers on whether they think we've drawn up the boundaries in the right places.’

‘We aren’t banning promotions to retail clients totally. We’re only saying that certain products are best targeted to more sophisticated or high net worth customers. We would be interested to hear whether firms believe that products like EIS and VCTs would be sold to the mass market.’

Pope also said that firms will need to segment their sophisticated clients and that the FSA would draw out definite guidelines with the policy paper due out sometime in the first quarter of 2013.

‘We genuinely want to see people who truly are sophisticated classified that way,' he said.

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