PS13/3 Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes

Why are we issuing these new rules?

Serious problems have been identified in the distribution of high-risk, complex investments to ordinary retail investors.  Sophisticated or high net worth retail clients may be better able to protect their own interests but ordinary retail investors face significant risk of detriment from these non-mainstream investment funds.  

So our predecessor organisation, the Financial Services Authority, consulted on banning the promotion of unregulated collective investment schemes and close substitutes in relation to ordinary retail investors in the UK.

Having considered the feedback we received to the consultation, we have made new rules. We set them out in this paper, together with the responses to our consultation and our feedback to those.

Who is this Policy Statement aimed at?

This Policy Statement will be of interest to:

• firms promoting products, now classified as ‘non-mainstream pooled investments’ (NMPIs) to retail customers;
• product providers offering these products or which allow access to them through investment wrappers;
• discretionary portfolio managers who may include NMPIs in portfolios;
• providers that create these investments;
• compliance consultants and other firms that assist distributors; and
• consumers and consumer organisations.

Policy Statement

• PS13/3 Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes[1]

What are the next steps?

Given the complexity of the legislative and regulatory framework in this area, we are allowing firms until the end of 2013 to implement the new rules.  The rules will take effect from 1 January 2014 but firms may wish to comply with them sooner, in particular given the significant risk of inappropriate or unsuitable sales to ordinary retail investors, which these rules seek to address.  

Firms affected by the new rules should use this time to consider what changes, if any, they need to make to their systems and to make sure they are ready to follow the new rules when they come into force.  

Investors who already hold a NMPI may want to seek advice on whether it is or remains suitable for their needs.  

We will supervise the market, both under current rules and under the new rules when they are implemented.  In particular, we will check that firms are not creating arbitrage opportunities, in order to bypass the rules, leading to detriment for investors.  If they are, we will consider options to address such behaviour.

Want to find out more?

For more information:

• read the Consultation Paper FSA CP12/19[2]; or
• look at the FCA Handbook[3].