We have written in the past about the multi-agency approach taken by the regulators to the issues surrounding Unregulated Collective Investment Schemes (UCISs) and here we are examining two more recent examples of such an approach.
The Insolvency Service (IS) has succeeded in High Court proceedings to ‘wind up’ a large group of companies involved in the carbon credit industry.
According to New Model Advisor (23 May 2014), Ecosynergy Group Ltd was a wholesale company selling Voluntary Emission Reductions carbon credits (VCRs) to other companies who then marketed the credits to investors.
The IS alleged that investors paid £19 million for the carbon credits which cost the company some £2.3 million.
It was believed by the IS that it was at the epicentre of a group of thirteen companies that sold the carbon credits. This was a somewhat unusual situation; generally the ‘seller’ companies are quite distinct and operate independently of the VCR platform company. In this case the IS described the ‘sellers’ as associates and this particular business model as pioneering.
It was alleged that the carbon credits were sold at inflated prices, and that false claims were made about expected returns somewhere in the region of 60%. The firms were apparently earning turnover of £5 million PCM.
The IS believed that many of the investors were vulnerable who were apparently ‘cold called’ by the seller companies.
The IS also successfully targeted a wine investment company in a so called ‘recovery fraud’.
Capital Bordeaux Investments (Company A) and Capital Bordeaux Investment Corporate (Company B) allegedly focused upon investors who had lost money in other wine investment schemes. The ‘victim’ investors then invested in Company A, and Company B received funds from the investors in order to recover monies from the original wine investment companies, allegedly a ‘recovery fraud’, even though the original companies were already in liquidation.
Common UCISs usually involve shares, land, overseas property, bio-fuels, carbon credits, wine, classic cars, forestry, storage units, and film schemes, amongst others.
The FCA (Financial Conduct Authority) also use other approaches when dealing with UCISs, such as heavily publicised warnings both to investors and the companies involved that they regard as ‘suspect’, and handing down large fines to those companies (and individuals) involved.
UCISs have been a high priority issue for the FCA for the last three years or so, and there isn't any sign that their focus is going to abate any time soon.
Michael Abrego, writing in New Model Adviser (7 May 2014), points out that the FCA have done a great deal to stamp on UCISs re-promotion of these schemes and unsuitable advice.
The RDR (Retail Distribution Review) banned the very attractive and high levels of upfront commissions and have insisted on higher professional standards. There has also been the all important ban upon selling UCISs to non-sophisticated investors since 1 January 2014.
There have been many highly publicised warnings to SIPP providers about UCISs and other non-mainstream investments. The FCA has required SIPP providers to alter the regulation permissions and they also intend to increase the providers’ capital adequacy requirements.
The FCA’s third thematic review into the SIPP market began in October 2013, and a number of SIPP providers have been strongly advised to stop accepting UCISs, unlisted shares, and commercial property syndicates until they can show stronger systems and controls.
Many in the financial services sector believe that all the responsibility for UCISs will fall to SIPP providers.
