Changes On The Horizon...

P Publications

July 01, 2021

We have seen lot in the press recently regarding various property bond scandals so it's not surprising the FCA appear to be ramping up their focus on marketing and distribution of funds to those they consider “unsuitable” to be investing (both formally and by less obvious means). 


Targeting a more widespread audience the FCA’s new discussion paper on the financial promotion rules for high-risk investments and firms approving financial promotions was issued at the end of April. This covers the proposed strengthening of the rules around classification of high-risk investments; further segmentation of the high-risk investments market; and the role of an authorised firm that approves a financial promotion. 


In relation to high-risk investments the FCA is considering changing these classifications and is seeking views on whether there are any investments which are not currently subject to marketing restrictions which should be and, should they change how certain types of investments are currently classified under the financial promotion rules, consequently changing the level of restrictions that apply. They are also proposing new rules to strengthen the categorisation of retail investors (as high net worth, sophisticated or restricted investors) where rules restrict the communication of financial promotions to retail investors who meet the relevant criteria; improve risk warnings to help consumers better understand and engage with them; and add “positive friction” to the consumer journey when making high risk investments that will lead to more effective decisions. 


The FCA is clearly concerned with striking a balance between allowing investors who have the financial resources to accept higher risk to do so, and ensuring that such investors understand the risk they are taking. 


Of interest to firms who approve financial promotions the FCA is considering widening the scope of these rules which ultimately can only make it more expensive for those looking to set up a fund and who want to have this approval. However, post the changes the FCA made to the rules to deal with crowdfunding some years ago s21 approval is actually no longer necessary. It could be argued that by trying to deal with one issue the FCA’s unintended consequence was that offerings can be made within the rules without a FCA regulated person involved on which the FCA can have redress. 


The deadline for comments is 1st July and it will be interesting to see the proposed rule changes announced as a result later this year as marketing of a fund is fundamental to all managers so potentially quite far-reaching impact.


A less obvious change in approach has been in relation to the requirement for a new property fund manager (within certain criteria) to register as a small registered AIFM with the FCA. Historically these applications were turned around very quickly with no, or very limited, questions being asked about the offering etc. However, in recent months we have had a number of clients who have had very detailed questions going back and forward for a number of weeks adding additional time into the fund launch process. All the clients involved use different legal providers and all reporting the same so worth keeping under consideration when looking at a fund launch timetable. It is no longer the opening of a bank account which can cause delay!