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UCIS – CII R02 and AF4 exams

UCIS – CII R02 and AF4 exams

Here, we look at UCIS – of interest to those studying for the CII R02 and AF4 exams.

Hot TopicThe FCA defines a UCIS as a collective investment scheme which is not authorised by them because it doesn’t meet specified criteria regarding diversification and investment.  The un-authorised investment is still legal but the marketing activity must be carried out subject to certain rules.

In 2010 the FSA issued a paper entitled ‘Unregulated Collective Investment Schemes: Good and poor practice report’ which identified various areas of concern; the lack of awareness of regulatory requirements, the lack of awareness of the risks involved and the product being promoted to customers who were not eligible to have the investment promoted to them.

According to the FSA only 1 in every 4 advised sale of UCIS to retail customers was actually suitable and that many of the promotions breached their rules. Following the report and consultation with interested parties, in June 2013 the FCA published final rules to ban the promotion of UCIS to the vast majority of UK retail investors which will took effect from the 1st of January 2014.

UCIS is considered to be a non-mainstream pooled investment (NMPI) and promotion of UCIS investments is restricted to only sophisticated investors and high net worth clients due to the greater risk of loss.

These products are outside the NMPI restrictions:

  • Exchange traded products
  • Overseas investment companies that would meet the criteria for investment trust status if based in the UK
  • Real estate investment trusts
  • Venture capital trusts
  • Enterprise investment schemes and seed enterprise investment schemes (unless structured as UCIS)
  • SPVs pooling investment in shares and bonds

The following investments are subject to NMPI marketing restrictions:

  • Units in qualified investor schemes (QIS)
  • Traded life policy investments
  • Units in UCIS
  • Securities issued by SPVs pooling investment in assets other than listed or unlisted shares or bonds.

The FCA continues to review the market of non-mainstream pooled investments.