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Tuesday, 4 June 2013

FCA bans promotion of wine funds to ordinary retail investors

Gates@Château Mouton-Rothschild

This afternoon The Financial Conduct Authority (FCA) has banned the promotion of Unregulated Collective Investment Schemes to ordinary investors. This ban includes wine investment funds, who will only be allowed to sophisticated investors and high net worth individuals. The new rules, set out below in the FCA press release, will come into force on 1st January 2014. 

Although many of the wine investment funds, whose management needs approval from the financial authorities if based in the UK, do only sell to sophisticated investors and high net worth individuals, the ban sends out a very powerful signal that companies selling wine investments, whether they are collective investments or not, should not be colding calling and should be assessing whether the investments they offer are suitable for their individual clients.

This is a very welcome statement.

While the ban, as it currently stands, does not apply to the boiler rooms of Bromley and elsewhere, flogging individual cases of wine to individual clients, it is now official that cold calling should not be used to sell investments

Once again it is abundantly clear that the Wine Investment Association (WIA) has to come into line and ban its members from cold calling. 

The message is clear: if a company cold calls you offering wine investments, plots of land, carbon credits etc. put the phone down. The company is out of line with UK investment policy, so is a scam.       


Press release from The Financial Conduct Authority (FCA)

FCA to ban the promotion of UCIS and certain close substitutes to ordinary retail investors

The Financial Conduct Authority (FCA) has published final rules to ban the promotion of Unregulated Collective Investment Schemes (UCIS) and certain close substitutes (together to be known as Non-Mainstream Pooled Investments (NMPIs) to the vast majority of retail investors in the UK. The rules mean that, in the retail market, promotions of these riskier and often very complex fund structures will generally be restricted to sophisticated investors and high net worth individuals for whom these products are more likely to be suitable.

The ban follows on from extensive work undertaken by the Financial Services Authority (FSA), which found that only one in every four advised sales of UCIS to retail customers was suitable and that many promotions breached the existing UCIS marketing restrictions. Concerns have also been identified in relation to products, which are close substitutes for UCIS and in relation to which the existing marketing restriction had no effect. A number of NMPIs have failed completely in recent years, leading to customers losing their total investment.  

The final rules follow a consultation period in which the FCA engaged extensively with all stakeholders and received detailed feedback. The majority of respondents agreed with the general aim of the proposals to protect ordinary retail investors from the risks arising from inappropriate promotion of NMPIs. However, the FCA has taken into consideration a number of responses about the definition of NMPIs and refined those to focus more tightly on products posing the greatest risk of inappropriate distribution to ordinary retail investors.  The FCA has also considered concerns about requirements applicable to marketing to high net worth or sophisticated retail clients and amended the proposals accordingly.

Following analysis of the feedback, a number of products now lie out of scope of the marketing restrictions. These include exchange traded products, overseas investment companies that would meet the criteria for investment trust status if based in the UK, real estate investment trusts and venture capital trusts. Enterprise investment schemes and seed enterprise investment schemes, unless structured as UCIS, are also outside the scope of the rules.  The marketing of special purpose vehicles pooling investment primarily in shares and bonds is also not restricted. Firms still need to ensure promotional communications about these products are fair, clear and not misleading, and if advice is given they must ensure any recommendation to invest is suitable to the client.

The following investments will be subject to marketing restrictions: units in qualified investor schemes (QIS), traded life policy investments, units in UCIS; and securities issued by SPVs pooling investment in assets other than listed or unlisted shares or bonds.

The FCA will continue to review market developments and, should it discover similar issues in the future that create the risk of significant potential for consumer detriment, particularly where arbitrage is taking place to avoid the marketing restrictions, it may need to consider an extension of scope of the rules. If necessary, the FCA can make a temporary product intervention rule to do this before consultation.

Christopher Woolard, director of policy risk & research, said:

“Consumers have lost substantial amounts of money investing in UCIS and similar products in recent years so the need to introduce new rules to prevent this from continuing was essential. However, we have also taken into account that for some investors these products can still be appropriate.

“We believe today’s rules strike the right balance. They should go a long way in helping to protect the majority of retail investors in the UK from inappropriate promotions while allowing the industry to market these risky, unusual or complex investment propositions to those experienced investors for whom they could be suitable options.”

The FCA is also monitoring the market in relation to products, which are not pooled investments. The industry is beginning to introduce to the retail market a range of novel securities – including contingent convertibles (CoCos), building society deferred shares and similar instruments – that were once exclusively offered to institutional investors, and which carry risks unfamiliar to and inappropriate for many ordinary retail investors.  The FCA intends to consult on the introduction of a new marketing restriction in relation to these types of products. 

Notes for editors


2. Examples of underlying assets sometimes held in UCIS and similar products include fine wines, crops, timber, and speculative financial instruments and traded life policies. These assets may sometimes appear to offer better returns with less volatility than more usual investment types but they are often actually higher risk investments.  The risks they carry are often esoteric and difficult to assess.  For example, they may be illiquid, difficult to value and prices may be volatile.  Governance controls can also be weaker than on more mainstream investment vehicles, which may increase the risk of product failure and loss of capital for investors.

3. Previously the FSA undertook a significant amount of work to improve standards. The FSA published guidance to firms to improve standards, including detailed findings of our file assessments and guidance on good and poor practice.  Last year the FSA issued over 250 letters to firms active in this market to repeat our concerns and highlight the key regulatory requirements that apply.

4. A list of recent enforcement notices
 against firms for providing unsuitable advice on UCIS is available.

5. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).

6. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.


Coverage in Press: Telegraph, Reuters,    


  1. Would you clarify whether this is just a restriction on IFA's promoting the investments or whether this is a total ban on the promotion by anyone, including the funds itself as issuer or the directors in a personal capacity. Would you also kindly clarify whether the rules have grandfather provisions, for example existing investors can continue to invest.

  2. Anon. From the FCA policy statement:

    Who is this Policy Statement aimed at?

    This Policy Statement will be of interest to:

    firms promoting products, now classified as ‘non-mainstream pooled investments’ (NMPIs) to retail customers;
    product providers offering these products or which allow access to them through investment wrappers;
    discretionary portfolio managers who may include NMPIs in portfolios;
    providers that create these investments;
    compliance consultants and other firms that assist distributors; and
    consumers and consumer organisations.

  3. JIM you are an comments are that of an absolute idiot......

    "Once again ....its members from cold calling."

    "The message is clear: if a company cold calls you offering wine is a scam."

    Just because a company cold calls does not mean it is a scam... your hatred for it must mean that you once tried it and miserably failed...

    also if a wine investment does not come under regulation... then why should it adhere to regulation for others when it is not necessary

    Until its necessary and law either put up or shut up

    I used to respect you but now regard you as a buffoon

  4. Hi Jim

    "For example, they may be illiquid, difficult to value and prices may be volatile."

    wine is not difficult to value hence live-ex and wine searcher.. wine is not volatile as prices go down over time or up as historical charts show... certain wines can be illiquid but always sold if the price is good

    Wines are a good investment according to the FT

    You harp on like an old granny jim

    1. Anon. It would be good if you read my post properly before commenting. 'they may be illiquid' is from the FCA not me. However, for liquidity problems you might consider the current status of the Nobles Crus wine fund.

    2. "wines are a good investment according to the FT"

      Ah. That's ok then. If its in the FT it must be right!

      After all, everyone knows the writers at the FT are not just journos trying to sell a newspaper but are actually all multi-millionaires by dint of their investment nous that they so selflessly share with the world.

      BTW to say that wines always sell if the price is good means nothing. You can sell anything if the price is low enough

    3. Anon, wine is incredibly difficult to value, if it was easy Liv-Ex would give a value, rather than a formula based on historical data and wine-searcher simply list the sales prices of merchants. I would challenge anyone to sell 1m of wine at the Liv-Ex mid price within 28 days, probably even 250k. It would be very easy to sell it at 25% below the mid price. Jim may be a maverick and have terrible dress sense but he has been right every-time he has suggested a company of not being legitimate. He has stood unwavering despite threats and attempts to discredit him. His questions about Noble Crus and their valuation model look to have been well founded. His comments re-cold calling are right and so will his doubts about the WIA all prove to be correct.

    4. Anon. I have to agree with you on dress....

  5. Dear Jim

    When liquidating a large amount of a particular wine or any commodity even exchange traded ones there will always be a liquidity problem... even in stocks this happens dependent on traded volume etc so etc there are many times people have been in shares or options and unable to sell.... so what highlighting wine by the FCA on this point only shows that they see what they want to... and the CSSF well they are like they est of the EU and Brussels/ Hague bureaucrats ... I will leave it to the imagination what I think of them

    So this is a normal investment scenario

    1. Anon. Private investors in Nobles Crus will doubtless hope you are right ...

    2. Anon. Wine was just one of the examples they gave.

  6. A few comments.

    The FCA is pretty clear that the promoter must assess the suitability before making the approach to a member of the public unless the promotion is for something that is exempt (REITs, listed securities, etc). In other words, wine would be one of the investment opportunities that is being covered by PS 13/3

    There is no mention of cold calling in what I have read of PS 13/3. That said, the ability to assess an individual client before contacting them has to be less when the contact is a 'cold call'.

    The burden is on the promoter to judge if the investor is exempt. Even if the investor was to declare they are a member of the exempt group (HNI, sophisticated investor, etc), the promoter has to take steps to verify rather than just accept the declaration. There is also a suitability test that the promoter has to use to make sure the specific opportunity is suitable to an exempt investor.

    I would say the shoe is on the opposite foot. People promoting an investment need to check before promoting and they need to keep clear records that confirm the right steps were taken at all times.

  7. John. Thank you. The FSA had clear rules about cold calling regarding those investments under its remit. This FCA statement treats wine investment as high risk – it has certainly been high risk for far too many investors. As you say the onus is on companies who are promoting these investments making sure of their suitability. This does not mean buying thousands of leads and getting your openers to work their way through them occasionally striking 'lucky'.