DEC 2012/JAN 2013 |www.opp-connect.com WORDS | John Howell


organisation servicing the needs of businesses around the world engaged in the development and sale of properties located in one country to buyers located in another.


Response to the FSA T


his response is submitted by OPP (Overseas Property Professional). We are a media


Your Questions:


1. Do you agree that we should look to impose restrictions on the promotion of non-mainstream pooled investments to ordinary retail investors? Yes.


As such, we need to be alert not only to your proposals but also to proposals of other regulators in other countries – where possible, lobbying to ensure that proposals in one jurisdiction do not contradict requirements in another. We have a combined readership of about 500,000 for our magazines and newsletters (OPP, OPP China, OPP India & OPP USA).


Before writing this response we have consulted with our readers and with others in the industry. In particular, we did this by way of a major presentation and debate at our OPPLive conference, held in London on 11th & 12th October 2012. We did invite the FSA to take part in that debate – which we think would have been very useful – but, unfortunately, we are told that it is your policy not to attend such events.


The position is at least as bad as you describe in your paper. However, we are not convinced that either your terminology or your proposed structure for the changes to the rules is particularly useful. Your defi nition of non-mainstream pooled investments:


“Pooled investments or ‘funds’ characterised by unusual, speculative or complex assets, product structures, investment strategies and/or terms and features.


“They are unregulated collective investment schemes; securities issued by special purpose vehicles; qualifi ed investor schemes; and traded life policy investments. Note that not all pooled investments meet the statutory criteria for a ‘collective investment scheme’; pooled investment special purpose vehicles, notably, do not generally amount to a collective investment scheme.”


This contains two limbs. The fi rst (“Pooled investments or ‘funds’ characterised by unusual, speculative or complex assets, product structures, investment strategies and/or terms and features”) is qualitative and very ‘grey’.


It is our view that the worst enemy both of ultimate protection for the consumer and those genuinely trying to comply with the law is uncertainty. Uncertainty has plagued this – undeniably complex – legislation from its inception.


The second limb (“They are unregulated collective investment schemes; securities issued by special purpose vehicles; qualifi ed investor schemes; and traded life policy investments.”) is structural.


The link between the two parts is, at least to us, unclear.


Many highly undesirable investments that would fall into the fi rst part of the


“We did invite the FSA to take part in a debate but were told it was against policy”


defi nition would fall outside the second – and vice versa. In any case, new structures will, no doubt, be developed over time, so muddying the waters even further.


In addition, surely, investments that fall within the second limb because they are a UCIS are already regulated and will already become subject to your proposed new rules? Does not referring to them again here further complicate and confuse matters? If the mischief you are targeting – and then only for pooled investments or funds – is that set out in the fi rst part of the defi nition (“unusual, speculative or complex assets, product structures, investment strategies and/or terms and features”), would it not be better to stop there? Whilst the ‘greyness’ of these words is, in our view, undesirable, it can, over time, be clarifi ed by guidance notes and case law.


Our response | This article has been written after lengthy discussions


In fact, your paper contains a further, and quite helpful, analysis of the problem characteristics associated with some types of investments and this


FSA


OPP RESPONSE | 09


Some months ago OPP promised to consult its readers and to respond to the UK Financial Services Authority’s consultation paper about further regulation of the sale of collective investments. Following a lengthy debate at the OPPLive conference and a series of meetings with interested readers, we submitted the following...


could, perhaps, usefully be included in the criteria that catch an investment as a non-mainstream pooled investment. Alternatively, would it not be easier and clearer simply to redefi ne the term UCIS to include all the things not currently caught but that you wish to catch?


2. Are there any other investments that should be treated in the same way? Yes.


Despite the best intentions of the FSA, the world is awash with appalling ‘investment opportunities’ and the position is getting worse by the day. a. Some are based in the UK and also promoted from the UK to the UK b. Some are based in the UK and promoted from the UK but exclusively to persons overseas


c. Some are based overseas but promoted from the UK to the UK d. Some are based overseas and promoted to the UK exclusively from overseas.


e. Some are based overseas and not promoted in any geographically identifi able way. They are pure internet products, sitting on a server in Belarus or some such and found by the magic of Google.


The problem is that tackling all these means of sale and promotion (if possible at all) would require wholesale rewriting of the legislation along simpler, more coherent and more internationally aware lines. We suspect that there is no appetite


for this.


Even tackling the parts of the industry clearly subject to UK law in a way that recognises and is consistent with obligations imposed elsewhere is a substantial challenge.


Once again, we suspect that there is no appetite for this.


In the meantime, we need to be clear about which aspects of this industry – specifi cally, which promotional activities – are subject to UK regulation and which are not, Arguably, the law is already fairly certain on this point but – in the light of our request for clarifi cation of the impact of your proposals generally, it would be useful to include this aspect as well and set it out in the same document. This could then be made known


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