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  1. 1. UCIS workshop<br />
  2. 2. Why the interest in UCIS?<br /><ul><li>Chasing better returns for clients
  3. 3. RDR definition for ‘Independent’
  4. 4. FSA review
  5. 5. FOS attitude?
  6. 6. PI cover</li></li></ul><li>Background<br />2 key FSA publications in July 2010<br />Unregulated Collective Investment Schemes: project findings<br />Unregulated Collective Investment Schemes: Good and poor practice report<br />AND<br />2 factsheets on UCIS – 1 x firms; 1 x consumers<br />
  7. 7. FSA supervisory work<br /><ul><li>2009 – FSA supervisory and TCF work identified issues in UCIS
  8. 8. October 2009 – FSA launched UCIS project
  9. 9. 6 small firms being investigated by Enforcement and Financial Crime Division
  10. 10. 11 firms – VVOP
  11. 11. 11 firms – s 166 reports</li></li></ul><li>FSA supervisory work<br />FSA concerns - macro<br />Lack of awareness of regulatory requirements for UCIS<br />Lack of understanding of the UCIS market and their risks<br />UCIS promoted and recommended to customers who were not eligible<br />
  12. 12. FSA supervisory work<br />FSA specific concerns<br />How firms used/issued financial promotions<br />Quality of advice<br />Systems and controls<br /> - Due diligence<br /> - T&C<br /> - Management Information<br />
  13. 13. What is a financial promotion?<br />A financial promotion is a communication that is an invitation or an inducement to engage in investment activity. <br />In other words, there is an element of persuasion. A communication that merely informs or educates will not normally be a financial promotion. An inducement is intended to lead, ultimately, to an agreement to engage in investment activity..............................<br />Financial promotions can be communicated through a number of means, such as:<br />product brochures;<br />general advertising in magazines, newspapers, radio, TV and websites;<br />mailshots;<br />written correspondence; and <br />sales aids.<br />Importantly, our rules apply across all media. When deciding whether a communication is a financial promotion, we look at whether it is an 'invitation or inducement to engage in investment activity', not the way it is communicated.<br />Source – FSA website The financial promotions regime<br />
  14. 14. What is a CIS<br />Definition of CIS – 235(1) FSMA<br />“ any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part … to participate in or receive profits or income… ”<br />Contributions/income/profits must be pooled<br />Participants cannot have day to day control over the management of the property<br />
  15. 15. What is a UCIS?<br />A CIS which is not a regulated CIS<br />Is neither authorised nor recognised<br />UCIS may be established, operated and/or managed in the UK or in a jurisdiction outside the UK<br />Not subject to any investment/borrowing restrictions<br />Not on FSA register<br />
  16. 16. Recognising a UCIS<br />No<br />Is the Investment a Collective Scheme?<br />Not a UCIS<br />Unclear<br />Refer to:<br /><ul><li> Fund Manager
  17. 17. Information Memorandum
  18. 18. Other Marketing Material</li></ul> - Care regarding clarity /accuracy<br /><ul><li>COLL Handbook (previously known as CIS handbook)</li></ul>Yes<br />Yes<br />Is It on the FSA Register?<br />It is a regulated CIS, not a UCIS<br />No<br />It is UCIS<br />
  19. 19. Risks of UCIS<br />Liquidity<br />Fixed and long term<br />Limited/no cancellation/FOS/FSCS rights<br />No guarantees (capital or income)<br />Redemption on discretion<br />High charges (plus SIPP)<br />Gearing<br />Currency/geo-political risks<br />Fraud/money laundering<br />Conflict of interest<br />Specific ‘single asset’ risks<br />
  20. 20. Restrictions on promotion<br />S 238 – FSMA<br />UCIS cannot be promoted to the general public unless a relevant exemption exists<br />Exemptions from Treasury<br />Exemptions from FSA (COBS 4.12)<br />
  21. 21. Promotion v recommendation<br />Para 1.17 <br />“ Firms are reminded that when it comes to promoting and advising on investments, they may be doing both in the course of the same communication (whether oral or written) ”<br />
  22. 22. Distribution<br />COBS 4.10.10R<br />Non MIFID firms – reasonable care to establish that another firm confirmed compliance<br />MiFID firms – cannot rely on 3rd party and must take responsibility<br />FSA expectations<br />IFA must understand information<br />Ask provider to supply additional information or training<br />Not distribute product/service if it does not understand it sufficiently<br />
  23. 23. Relevant exemptions<br />CIS order and FPO<br />22 exemptions<br />High net worth<br />Sophisticated investor<br />Self-certified sophisticated investor<br />etc<br />
  24. 24. CIS Order<br />SI 2001 No 1060<br />Article 21 – Certified high net worth<br />Article 23 – Certified sophisticated Investor<br />Certificates signed by accountant/employer<br />SI 2005 No 270<br />Article 21 – Certified high net worth (can self certify but restrictions on property type)<br />Article 23 – Sophisticated Investor (cannot self certify but no restrictions on property type)<br />Article 23A – self certified sophisticated investor (can self certify but restrictions on property type)<br />
  25. 25. FPO<br />SI 2001 No 1335<br />Article 48 – Certified high net worth individuals<br />Article 50 – Sophisticated Investors<br />Certificates signed by accountant/employer<br />SI 2005 No 270<br />Article 48 – Certified high net worth (can self certify but restrictions on property type)<br />Article 50 – Sophisticated Investor (cannot self certify but no restrictions on property type)<br />Article 50A – self certified sophisticated investor (can self certify but restrictions on property type)<br />
  26. 26. FSA exemptions<br />COBS 4.12 – 8 exemptions<br />Category 1 – already UCIS investor<br />Category 2 – UCIS “suitable”<br />Category 7 – professional client<br />Category 8 – sufficient knowledge and experience : warning must be provided<br />
  27. 27. MiFID status<br />Article 3 MiFID exemption<br />reception and transmission of orders or investment advice, or both, in relation to transferable securities and units in collective investment undertakings<br />transmit orders only to one or more of the following:<br />other MiFID investment firms<br />credit institutions authorised under the BCD<br />branches of third country investment firms or credit institutions complying with rules at least as stringent<br />collective investment undertakings or their managers authorised under the law of an EEA State to market units to the public <br />EU incorporated investment companies the securities of which are listed or dealt in on a regulated market – eg: investment trust companies<br />
  28. 28. Practical guidance<br />CF10 approval<br />Article 3 MiFID exemption<br />PI<br />Bespoke procedures<br />Role of investment committee (TOR)<br />Set benchmark on asset allocation<br />FSA good/bad practice guide<br />Research/due diligence<br />IFAs cannot rely on third party<br />Must undertake appropriate due diligence and keep it under review<br />
  29. 29. Practical guidance<br />Financial promotions and exemptions register<br />Ensure financial promotion itself approved<br />Ensure exemptions register completed before promotion issued<br />Pre-approval of all UCIS recommendations?<br />File monitoring sheet<br />Complaints<br />Role of introducers<br />
  30. 30. Practical guidance<br />Training and competence<br />Evidence of training on UCIS generally<br />Specific training on each UCIS including risks<br />Proper CPD records<br />Requirements include advisers/senior managers/compliance monitoring staff<br />
  31. 31. Practical guidance<br />Management Information<br />Number of financial promotions issued on UCIS<br />Confirmation that evidence retained to demonstrate client eligibility<br />Number of clients by adviser where personal recommendation made<br />Number of cases where benchmark on asset allocation exceeded<br />Confirmation that all cases pre-approved by relevant individual<br />Results of pre-approval assessments/file monitoring<br />Details of T&C undertaken<br />
  32. 32. FSA review<br />Action required (Para 1.17)<br />Firms must review:<br />Financial promotion procedures – specifically client eligibility<br />Selling practices – to ensure suitable advice provided<br />Systems and controls – T&C/due diligence etc.<br />
  33. 33. FSA review<br />“ Firms should consider temporarily ceasing promoting, advising on and/or arranging further UCIS transactions, including transfers from one UCIS to another, until they have reviewed and aligned their UCIS financial promotion processes and practices to the requirements under section 238 FSMA, the PCIS Order and COBS 4 ”<br />
  34. 34. UCIS workshop<br />Unanswered questions<br />Is a suitability letter a financial promotion?<br />Transmission of orders to:<br />- Platforms – Nucleus<br /> - SIPP providers<br /> - Fund management companies in Isle of Man/Guernsey/Jersey<br />
  35. 35. UCIS workshop<br />Any questions?<br />Want to do a quiz?<br />