UK restricts unregulated CIS promotions to rich investors

Amid a raging debate in India over huge amounts of money being garnered by various ponzi schemes, the UK today banned the promotion of 'unregulated collective investment schemes' among ordinary retail investors.
Consequently, the promotions of such schemes would be restricted to the sophisticated investors and High Net Worth Individuals (HNIs), as the British financial sector watchdog FCA (Financial Conduct Authority) felt that these products were too risky for small retail investors.
These schemes mostly include pooled-in investments in assets other than listed or unlisted shares or bonds, as also investment products based on fine wines, crops, timber, and speculative financial instruments.

The ponzi schemes, which involve collection of public money with promise of huge returns based on projected appreciation in the price of underlying products, have become a matter of debate in India over the recent months, after many such schemes were found to be defrauding the investors.
Some of such schemes that have recently come to light include Saradha real estate scheme in West Bengal, as also some innovative schemes like those related to farming of emu birds and rearing of goats in different parts of the country.
The Indian government is currently considering various steps required to rein in such schemes and the proposed measures include overhaul of relevant regulations and a possible setting up of a separate watchdog for all kinds of pooled-in investment schemes.

Here in the UK, the FCA said today that it has finalised final rules to ban the promotion of Unregulated Collective Investment Schemes (UCIS) and certain close substitutes (together to be known as Non-Mainstream Pooled Investments (NMPIs)) to the vast majority of retail investors in the UK.

"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," it said.
The ban follows a study undertaken by the regulatory authorities here that 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.

It also found that a number of NMPIs have failed completely in recent years, leading to customers losing their total investment.