Brokers warned over unregulated schemes
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The Association of Mortgage Intermediaries has warned brokers they could end up in court if they advise on Unregulated Collective Investment Schemes without the proper authorisation.
The trade body says it has been in talks with the Financial Services Authority about the dangers of brokers advising on the in-vestment schemes.
Many UCIS are risky and are advertised as being unregulated, giving the impression that brokers do not need investment authorisations to sell them.
But Robert Sinclair, director of AMI, says some firms are preying on the broker community because they know it has suffered a drop in income in recent times.
He says: “It has come to our attention that a couple of firms have been marketing these schemes to brokers and packagers.
“The schemes can be dangerous if brokers don’t understand the risks. It’s not just potentially the Financial Ombudsman Service that brokers will have to answer to - they could lose their licence and face charges for misrepresentation.”
In this week’s issue of Mortgage Strategy, Linda Woodall, head of investments at the FSA, warns brokers about the risks of getting involved with the schemes.
She says: “It has recently been highlighted that UCIS are being marketed as an appealing option for mortgage brokers as they are unregulated so they can be promoted and advised on without the need for regulatory authorisation.”
But she says firms should not promote or provide advice on UCIS unless they have the relevant investment permissions and comply with appropriate
requirements of both the Financial Services and Markets Act 2000 and the FSA Handbook.
Woodall warns: “If you are a mortgage broker and have been advising retail customers to invest without considering the restrictions on UCIS promotions to the public, you should check with your professional indemnity insurer whether your cover remains valid, and seek guidance on the steps you will need to take for your clients.”
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Readers' comments (1)
Compliance Man | 18 Jul 2011 12:11 pm
This is an area that causes problems for both the non investment authorised intermediary and some fimrs who set up and run unregulated collective investment schemes - which is also requires authorisation.
The FSA really haven't helped here by using terminology that is misleading to anyone thinking about this type of activity.
Whilst I appreciate that it is designed as a warning to investors, maybe they could find some other description that leaves everyone clear as to the requirements.
After all, firms materials are expected to be clear, fair and not misleading.
Maybe something Limited Regulation CIS would be a better descriptor and reduce some of the issues that have been found.
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