Regulatory Roundup 29 mentioned the continuing interest of the FSA in the marketing of unregulated collective investment schemes (UCIS) and the penalty of £35,000 imposed on Specialist Solutions Public Limited Company for regulatory failings in such marketing.
The FSA action has now moved from the regulated entity to the approved person holding the compliance oversight function.
Mr Ian Jones, who also held the CF1, CF11 and CF30 functions, was not aware of the regulatory system in relation to the promotion of UCIS and as such breached Statement of Principle 7 (being one of the seven Principles in APER 2.1 that are applicable to approved persons rather than one of the eleven Principles in PRIN 2.1 that are applicable to firms). The result was a penalty of £16,000 and an order prohibiting him from performing any significant influence/customer function in relation to the promotion of UCIS.
Firms are reminded that the promotion of UCIS is subject to the recipient meeting one of the categories in COBS 4.12. Firms may also be able to use one of the exemptions in the Promotion of Collective Investment Schemes (Exemptions) Order 2001 (PCIS). However problems can arise for firms using this route. By way of example some firms make use of the “certified high net worth individual ” (HNW) exemption but overlook the restriction in s21(6) that this exemption can only be used where a scheme invests wholly or predominantly in shares or debentures of an unlisted company. In addition most HNW clients are likely to be retail.
Whilst marketing in itself is not a regulated activity, there may be problems for a firm should it end up undertaking regulated activities with such a HNW without the necessary Part IV permission. Finally, whilst promotion of a UCIS is not within the scope of MiFID, the peculiarities of the Directive are such that if such a communication is deemed to be preparatory to the provision of a MiFID service (e.g. reception and transmission) then the communication will be considered as MiFID business. As such a MiFID firm will have to ensure that the MiFID requirements included in COBS 4 are satisfied. The message for MiFID firms is that whilst it is not impossible to use PCIS it is important to tread carefully.