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The recent flotation (or IPO) of the Post Office may have come as something of a welcome relief for the retail investor. Whilst most of us will have had some exposure to the capital markets through our pension funds, opportunities for direct participation in IPOs have been few and far between as the costs and procedural requirements of compliance with the Prospectus Rules set against available capital have mitigated towards institutional offerings only to the exclusion of the consumer.

Tightening regulation

Investors in the unregulated market have fared no better as the FCA and its predecessor have flexed their muscles to ensure the “retail investor” is protected from perceived risky or inappropriate offerings of more exotic investments.  A further tightening will take place from 1 January 2014 when new rules will come into force restricting the marketing of unregulated collective investment schemes and their close substitutes (together referred to as Non Mainstream Pooled Investments – NMPIs) to retail investors.

What is a ‘collective investment scheme’?

A collective investment scheme is an arrangement that enables investors to pool their assets (that is, property of any description, including money) which are managed by or on behalf of an operator of the scheme, with a view to the scheme members sharing profit or income from the ownership or operation of the underlying assets.  Such schemes can be regulated, as in the case of authorised unit trusts or Open Ended Investment Companies, or more commonly unregulated. In addition the new rules will now extend to the marketing of incorporated investment vehicles, special purpose vehicles, an area previously excluded from the scope of unregulated collective investment schemes (UCIS).

Unregulated collected investment schemes became increasingly common as a means of generating investment, often for single purpose vehicles, such as regeneration projects, accommodation and housing and the like, where otherwise investment capital was difficult to source due to the funding gap that exists for many smaller companies in the UK.  As such these schemes provided a useful funding mechanism for many businesses whilst providing income and capital gains for participants at a time when returns from traditional markets were stagnant.

More regulation

Whilst there have been many properly constituted UCIS that functioned perfectly well there have also, predictably, been many high profile failures, dating back as far as 2008 when the FSA sought to wind up UKLI Ltd, the UK’s largest land banking company, as an improperly constituted collective investment scheme.  The number of failures and the proliferation of schemes seeking investment for an ever expanding class of exotic assets – fine wines, teak farms – led the FSA to the conclusion that the promotion and sale of UCIS/NMPI’s generally were often inappropriate and that the retail investor was not being sufficiently protected by the existing safeguards.  The upshot of all that is that with effect from 1 January 2014 UCIS promotions will generally be restricted to sophisticated investors and high net worth individuals only and will therefore not be available to retail investors generally, irrespective of the worth of the underlying scheme.

Is it too much?

The extension of UCIS prohibitions to NMPI’s, often in practice special purpose vehicles, and the confusion in the investment advisory marketplace surrounding this definition and therefore the scope of the prohibition, has resulted in a paralysis of the availability of funding for viable projects until such time as the guidance is clarified, whenever that might be .

The next pressure point for the funding for small businesses will follow the anticipated publication of regulations concerning crowd funding, an area which many investors erroneously perceive to be currently unregulated. If further regulation is introduced, which it will be, will this again be at the expense of the small business and the retail investor?

For more information email blogs@gateleyuk.com.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.