Defining the Mainstream

The Financial Conduct Authority (FCA) has published new rules on the promotion of unusual and risky investments. The new rules that come into effect from 1 January 2014 tighten up the definition of ‘mainstream’ investment.

The financial regulators have been concerned for some time about the range of non-standard investments being widely promoted to an unwitting general public. The schemes on offer have covered everything from fine wines to carbon credits and have not had the regulatory authorisation which comes with unit trusts and open-ended investment companies.

Last year the Financial Services Authority (FSA) banned the sale of traded life policies to ‘retail clients’ and consulted on the introduction of a broader range of restrictions. In June the FSA’s successor, the FCA, took the next step and issued formal rules that will limit the promotion of what it called ‘non-mainstream investment products’ (NPMIs) to only sophisticated and high net worth investors.

The new rules do not take legal effect until 1 January 2014, although the FCA coyly suggests that “…firms may wish to comply with them sooner, in particular given the significant risk of inappropriate or unsuitable sales to ordinary retail investors…” Fortunately Venture Capital Trusts (VCTs) and most Enterprise Investment Schemes (EIS) will not be affected, contrary to earlier press rumours.