Unregulated Collective Investment Schemes (UCIS) Explained
Here, our Hertfordshire financial advisors will explain the differences between regular Collective Investment Schemes and unregulated ones. We will explain the new UCIS legislation that has recently been introduced, and look to the future of this type of investment.
UCISs are investments that are not regulated by the Financial Conduct Authority. When compared with regulated schemes (CIS), UCISs are associated with higher risks due to the unavailability of investment protection.
For example, if you invest and buy shares in a UCIS that purchases land for development, and then the development of this land is made impossible due to lack of local permission, you would stand to lose all of your money. Furthermore the FCA does not regulate the behaviour of UCIS service providers, meaning that they may not investigate organisations and individuals nor levy fines.
UCISs will not appear on the financial services register.
Who can invest?
Since January 2014, UCISs have been distinguished from other financial products. The first step was banning the promotion of UCIS to normal customers. To reduce the amount of investors seeing catastrophic results, only experienced investors could be presented with UCIS opportunities by service providers.
Regular retail customers are now generally excluded from UCISs and the product-type has received bad press recently with various fraudulent schemes leading to arrests. These have been part of Operation Cotton, a huge FCA investigation into dodgy UCISs which has been facing procedural controversy of its own.
The future of UCISs
It looks as though the future of UCISs will follow the same trajectory set in 2014. Just before the turn of the year, the Institute of Financial Accountants (IFA) launched a petition to ban UCISs altogether.
The IFA has more experience than most of the ruining effect ill-advised UCIS investments can reap on unsuspecting or misled investors. The problem is compounded by the fact that many investors have used their Self-Invested Pension Plans (SIPPs) to invest in UCISs, meaning they have risked their pension on an unregulated service.
Given the increased risk on UCIS investments, the IFA petition, the fact UCIS traders often receive exceedingly large commissions and the trajectory set by the 2014 legislation, it seems that UCISs will not have much of a future – certainly not for the common personal investor.
When you combine the fact that UCISs are being suppressed, with their heightened risk, common investors may want to consider alternatives to guarantee a strong portfolio. Get in touch with one of our Hertfordshire financial advisors today.
The articles in this newsletter are for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.