The UK’s new regime governing the sale of what are called Unregulated Collective Investment Schemes – or UCIS – has kicked in, designed to protect ordinary retail clients from marketing of investments deemed to be unsuitable for them.

The UK’s new regime governing the sale of what are called Unregulated Collective Investment Schemes – or UCIS – has kicked in, designed to protect ordinary retail clients from marketing of investments deemed to be unsuitable for them.

Following a review of how UCIS were being marketed last year, the Financial Conduct Authority’s new approach takes force from the start of this year. However, while some schemes are affected, venture capital trusts, which are listed vehicles that put money into small firms and offer various tax breaks, will not be brought under the umbrella of the change.

Octopus Investments, one of the firms that operates VCT and similar investment structures, said it was relieved the regulator had decided not to impose restrictions on the marketing of VCTs to retail investors.

“Naturally we were delighted that the FCA had recognised that there is a fundamental difference between VCTs and certain highly illiquid, high risk and under-regulated products which the review sought to restrict. This means that ordinary retail investors can continue to access this useful investment product, and financial advisors can keep an effective tax-planning tool in their armoury. It could have been a very different Christmas for VCT providers had this important distinction not been made,” Mike Piddock, business line manager for VCTs at Octopus, said in a note.

The move by the FCA is part of a general push by the watchdog to protect retail investors from investments such as those where the underlying assets are highly illiquid, or which adopt complex strategies. Since the 2008 financial crisis, regulators around the world have sought to tighten controls. One concern might be that in their understandable zeal to prevent mis-selling, investors could be denied the opportunity to hold high-return products, a particular problem in a period of low interest rates.

After what had been a difficult start to 2013, when the financial services sector was digesting the full impact of the Retail Distribution Review programme of reforms to financial advice, interest in VCTs has been strong, Octopus’s Piddock said.
 
“And 2014 looks like it’s going to be even better. In particular, we’re seeing investors looking at VCT investment throughout the year rather than just a tax planning solution to be used in March alongside their ISAs [Individual Savings Accounts],” he said.

However, had the UK regulator not exempted VCTs from its crackdown on UCIS marketing to retail investors, the kind of inflows Octopus is seeing would not have materialised, he said.