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The rules mean that, in the retail market, promotions of these riskier and often very complex fund structures will generally be restricted to sophisticated investors and high net worth individuals for whom these products are more likely to be suitable.
The ban follows on from extensive work undertaken by the Financial Services Authority (FSA), which found that only one in every four advised sales of UCIS to retail customers was suitable and that many promotions breached the existing UCIS marketing restrictions. Concerns have also been identified in relation to products which are close substitutes for UCIS and in relation to which the existing marketing restriction had no effect. A number of NMPIs have failed completely in recent years, leading to customers losing their total investment.
The final rules follow a consultation period in which the FCA engaged extensively with all stakeholders and received detailed feedback. The majority of respondents agreed with the general aim of the proposals to protect ordinary retail investors from the risks arising from inappropriate promotion of NMPIs. However, the FCA has taken into consideration a number of responses about the definition of NMPIs and refined those to focus more tightly on products posing the greatest risk of inappropriate distribution to ordinary retail investors. The FCA has also considered concerns about requirements applicable to marketing to high net worth or sophisticated retail clients and amended the proposals accordingly.
The following investments will be subject to marketing restrictions: units in qualified investor schemes (QIS), traded life policy investments, units in UCIS; and securities issued by SPVs pooling investment in assets other than listed or unlisted shares or bonds.
The FCA will continue to review market developments and, should it discover similar issues in the future that create the risk of significant potential for consumer detriment, particularly where arbitrage is taking place to avoid the marketing restrictions, it may need to consider an extension of scope of the rules. If necessary, the FCA can make a temporary product intervention rule to do this before consultation.