The Financial Services Authority (“FSA”) has today announced that, pursuant to a Final Notice 2nd October 2012, it has fined Mr Martin Rigney, of Topps Rogers Limited, £117,330 and banned him from performing any function in relation to any regulated activity. The FSA has taken this action in response to Mr Rigney’s promotion and advice in respect of UCIS which the FSA has deemed resulted in his failure to comply with Statements of Principle 1, 2 and 7.
It is alleged by the FSA that Mr Rigney, between May 2004 and June 2010, promoted and advised retail customers to invest in UCIS without assessing their eligibility to receive UCIS promotions or explaining why his recommendations were suitable. It is alleged that he:
- Failed to ensure adequate steps were taken to establish that an appropriate exemption from the statutory restriction on promotion of UCIS was applicable before promoting UCIS;
- Failed to inform customers as to how and why an exemption to them;
- Failed to obtain and record sufficient information from customers to determine the suitability of UCIS;
- Failed to explain the suitability of UCIS to his customers;
- Failed to ensure that he had adequately explained the costs associated with UCIS to his customers;
- Arranged investments in UCIS without obtaining customers’ signatures and authority; and
- Demonstrated a lack of integrity by arranging a UCIS sale after Tops Rogers had voluntarily varied its Part IV permission, in May 2010, to stop arranging new business connected with UCIS
UCIS are collective investment schemes that are not subject to FSA regulation. Examples include investment in crops, timber, wine etc. They are high risk investments and the promotion of them is restricted. Section 21 of the Financial Services and Markets Act 2000 (“FSMA”) prevents promotion of UCIS by unauthorised person, unless the promotion is approved by an authorised person or benefits from an exemption. Section 238 of FSMA prohibits an authorised person from promoting a UCIS unless there is a statutory exemption or if the promotion is permitted under the FSA rules found in the FSA handbook at COBS 4.12.
Mr Rigney should have ensured that his customers fell into one of the exemptions which permit promotion of UCIS. Generally speaking the exemptions permit promotion of UCIS to the following individuals:
- Certified high net worth individuals (article 21 of the FSMA (Promotion of Collective Investment Schemes (Exemptions)) Order 2001 as amended (the “2001 Order”);
- Certified sophisticated investors (article 23 of the 2001 Order);
- Self certified sophisticated investors (article 23A of the 2001 Order); and
- Individuals that fall into one of the 8 categories detailed at COBS 4.12.
There are several conditions which have to be met to rely on these exemptions and it is important that authorised persons giving advice and promoting UCIS ensure they have adequate procedures in place to identify and document information which determines whether a customer can benefit from one of the exemptions.
It is also vital that where a customer falls within an exemption and UCIS can be promoted that the authorised person ensures that they gather and document all relevant information to establish whether the UCIS promoted is suitable for a particular customer. See COBS 9 for further information on the basic rules of suitability.
The FSA’s position
Mr Rigney is the 19th enforcement case brought by the FSA since 2011 in respect of UCIS failings. A list of those individuals/entities against whom enforcement action has been taken can be found here.
The FSA has, particularly within the last year, been vocal about the promotion of UCIS and has issued a consultation paper in respect of potential further restrictions. Responses to the Consultation Paper are due in November and it will be interesting to see what steps are taken by the FSA.
It is important that all individuals engaging in the promotion and recommendation of UCIS are fully aware of the legislative requirements which must be adhered to. There are a number of legitimate UCIS which, if used wisely, can result in a more diversified investment portfolio. However, there are a number of fraudulent, non-existent and/or inappropriate UCIS in the market place and there have been highly publicised accounts of individuals who have lost thousands, if not millions, of pounds in investments as a result of advice given to invest in such schemes. Authorised persons must ensure that they have covered every avenue if they choose to promote and recommend UCIS.