Unregulated collective investment schemes

Some complicated investment opportunities are being unlawfully promoted and sold to members of the general public. Find out why to be wary of these unregulated collective investment schemes (UCIS).

A collective investment scheme (CIS), which is sometimes referred to as a ‘pooled investment’, is a fund that several people contribute to. A fund manager will invest the pooled money in one or more types of asset, such as stocks, bonds or property.

There are many types of collective investment scheme available to investors. We regulate these schemes, including authorised UK schemes and ‘recognised’ schemes from other countries.

If a collective investment scheme is not authorised or recognised it is considered an unregulated collective investment scheme (UCIS). Unregulated collective investment schemes are not subject to the same restrictions in terms of their investment powers and how they are run.

You can check the Register to find out whether a collective investment scheme is authorised or recognised – click on the ‘Advanced search’ link to search collective investment schemes.

Who can invest in UCIS

Unregulated collective investment schemes can be based outside the UK and dedicate money to a range of different enterprises, including less common investment products and activities like film production, forest plantations and foreign property.

These schemes can’t be promoted to the general public in the UK, but can be proposed to some limited types of investor, including:

  • certified high net worth investors
  • sophisticated investors
  • self-certified sophisticated investors
  • existing investors in UCIS

Despite this rule we have seen evidence that ordinary members of the public are being sold UCIS, with some customers being advised to invest their self-invested personal pension (SIPP) into a UCIS.

This is not recommended for most people as unregulated collective investment schemes by their nature are risky products, and because we do not regulate them you may not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

We are taking direct action against several firms and advisers involved in the sale of UCIS to members of the general public.

Protection against UCIS

Even if a scheme is not authorised or recognised, persons carrying on regulated activities in the UK in relation to UCIS – including providing personal recommendations, arranging deals and establishing, operating and managing schemes – are still subject to our regulation.

Before you agree to invest in an unregulated collective investment scheme, your adviser should be clear that they are permitted to promote the scheme to you and explain why the scheme is suitable for your circumstances.

If you are not sure whether you fall into any of the groups that can have a UCIS promoted to them, you should ask your adviser what category applies to you. If you have already been sold a UCIS you can still ask the firm what eligible investor group you fall into.

If you are considering investing in a UCIS, make sure you read all available information, ensuring you understand and accept the risk that you may lose some or all of your investments. If your adviser is not able to clearly explain the nature of the underlying investment and risk to you, then consider whether you fully understand what you are investing in.

You should also confirm with your adviser what charges there are, what the rate of return is and whether this is actual or targeted.

Perhaps most importantly, you should ask whether you may have access to the Financial Ombudsman Service and Financial Services Compensation Scheme if things go wrong, and seek independent professional advice if you are in any doubt about the potential risk and returns involved.

If you believe that a firm has promoted or sold you a UCIS that is not suitable for you, sold a UCIS to you unlawfully or without fully explaining the risks, you should make a complaint to the firm involved.