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The stated aim of the proposed rule changes is ‘to improve retail consumer outcomes by limiting the promotion of UCIS and close substitutes and ensuring that they are recognised as specialised products unsuitable for general promotion in the UK retail market’. This has been prompted by a number of products that were unsuitable for sale to ordinary retail investors having been sold to such investors. The JAC agrees with the stated aims however, in the view of the JAC, the FSA’s proposed rule changes go further than is necessary to achieve these aims and there is a danger that retail consumers may potentially suffer as a result.
As a general observation the JAC would note that the existing CIS legislation provides a statutory regime for the regulation of collective investment products. The definition of collective investment scheme (CIS) is deliberately broad in scope and is subject only to certain limited exemptions. The FSA has set out in the Consultation Paper some specific examples of products which have been inappropriately sold to retail investors. The JAC would suggest that many of these products should in any event have fallen within this existing CIS regime and its restrictions on promotions. It is suggested that problems arising from the application of the CIS regime and the CIS definition in practice are best resolved through making the current regime more widely understood. The JAC would also note that the courts are the ultimate arbiters of whether a product is or is not a CIS. Introducing an additional regime would appear to be a disproportionate response and one that introduces an additional and unnecessary level of complexity.
If the FSA believes that even were the current regime to be better understood and more rigorously policed, there would remain a small subset of unsuitable products falling outside the CIS definition, the JAC believes that any further definition need only be narrowly defined. The JAC would strongly suggest that the definition of non-mainstream pooled investments in the Consultation Paper is too wide as currently framed and could catch products that are entirely suitable and desirable for ordinary retail investors.