Thursday, 6 September 2012
FSA proposals on wine investments etc. miss real target
In August the FSA (Financial Services Authority) issued a consultation paper how how Unregulated collective investment schemes (UCIS) are promoted and sold with a view to tightening up procedures and providing more protection to consumers by limiting their promotion to sophisticated and wealthy investors.
We have seen a significant increase in sales of UCIS to retail consumers and are aware of a number of risks in this market. We highlighted our concerns in our Retail Conduct Risk Outlooks in 2011 and 2012.
CP12/19 - Restrictions on the retail distribution of UCIS and close substitutes
We have published a consultation paper proposing rule changes aimed at improving retail consumer outcomes by limiting the promotion of UCIS and close substitutes, and ensuring that they are recognised as specialised products unsuitable for general promotion in the UK retail market. As providing financial advice generally includes making a financial promotion, by limiting the promotion of UCIS we aim to limit the number of retail clients being wrongly advised to invest in UCIS.
For full details of our proposals please read the consultation paper.'
Wine is mentioned in the consultation paper as one of the areas that have concerned the FSA: 'Our work has identified situations where members of the general public have been invited to invest in pooled investments based on the performance of unusual assets such as traded life policy investments (TLPIs), fine wines, crops and timber.'
Unfortunately, although in a Decanter news story on the FSA proposals, Chris Hamilton is quoted: 'FSA spokesman Chris Hamilton told Decanter.com there were numerous examples of unsuitable wine investments being sold, and pointed to an investigation earlier this year which estimated fine wine investors had lost £100m over four years by entrusting their savings to failed wine companies' the FSA proposals miss what ought to be their target completely.
The FSA proposals cover wine funds, which are collective investments. I cannot remember the last time I had a complaint involving a wine fund. They do not cover the widespread miselling of individual cases to individual investors as investments. The £100 million loss quoted by Hamilton was suffered by investors buying individual cases as an 'investment'. Even though they are clearly promoted as investments, these transactions are outside the remit of the FSA. So anyone can set up a wine investment company and make all sorts of far fetched and outlandish claims about wine investment returns often based on out of date statistics and the FSA can say nothing.
The only possible exception to this might be the selling of en primeur. which might be deemed as a 'collective investment' as an individual's wine cannot be identified until it has been bottled.
In the meantime more and more 'wine investment' companies disappear with investors' hard earned savings. Those investors are now likely to endure a long-term financial mugging.