The FCA is continuing its clampdown on Collective Investment Schemes (“CISs”) being operated and/or promoted without the requisite authorisations, with a trial likely to start in the High Court in Autumn 2013 in relation to two particular schemes:

  • African Land (also known as Agri Capital), which relates to investment in rice farm harvests in Sierra Leone, operated by African Land Limited; and
  • Reforestation Projects (also known as Capital Carbon Credits) which relates to the investment in carbon credits generated from Land in Sierra Leone, Australia and Brazil.

This serves as a reminder that firms and intermediaries should be aware that even where the underlying assets or investments might not be “specified investments” for the purpose of FSMA 2000 (which land and carbon credits are not), the operation and promotion of a CIS requires FCA authorisation. Without the requisite authorisation or exemption, the operator or promoter will be in breach of the s.19 FSMA general prohibition, thereby committing a criminal offence.

The preliminary trial will focus on whether the schemes were CISs. The statutory definition of what constitutes a CIS is contained in s.235 FSMA. Although complex and with fine distinctions, broadly speaking, the main characteristics of a CIS are:

  • The purpose is to enable participants to receive profits or income arising from the ownership of the property;
  • Participants do not have day-to-day control over the management of the property; and
  • Either the contributions and profits or income are pooled, or the property is managed as a whole by or on behalf of the operator of the scheme, or both.

This case is the latest in a line of cases where the FCA has pursued unauthorised CIS operators and promoters through the courts. In June 2013, the FCA announced that it had reached a settlement with St Clair Estates and others operators in relation to an illegally run land bank which was operating as a CIS without the requisite authorisation. In that case, the FCA initially obtained injunctions and freezing orders of the operators’ assets and subsequently secured a £380,000 pay-out from the operators to be returned to investors (although this figure represented less than 20% of the total £2.2 million in sales under the scheme). Similarly, the FCA has obtained undertakings and court orders to freeze the major assets of most of the defendants in this case, but it remains to be seen how much can ultimately be returned to investors.