A proposed ban on marketing many unregulated financial products considered risky investments -including Seed Enterprise Investment Schemes (SEIS) – is under review by the Financial Services Authority (FSA).
The FSA says such schemes need further consideration and they have written to the Association of Investment Companies (AIC) suggesting amendments to the proposals.
The move has been welcomed by the industry which was taken aback by the proposed ban on unregulated collective investment schemes (UCIS) and their ‘close substitutes’.
Industry experts flagged up at the time that the term was open to interpretation and now the FSA is going to define exactly what an unregulated product or investment is for the first time
The biggest worry was that the move would close such investment vehicles to ordinary investors even though the government has introduced lucrative tax incentives for taking part in some, including SEIS.
Protecting consumers
The FSA’s letter to the AIC said it was amending the ban to exclude exchange traded products (ETPs), real estate investment trusts (REITs) and venture capital trusts (VCTs).
They also plan to exclude offshore investment firms that would meet their criteria as an investment trust if they were UK-based.
The FSA insists that it was trying to find the correct balance between protecting consumers and offering them choice.
The AIC said in a statement: “The FSA’s plan to rethink their proposals comes after a constructive process of engagement and we are pleased that our concerns have been recognised.”
When the new rules were unveiled in September 2012, the AIC said the VCT industry would be severely affected.
As things stand the only people who could benefit from SEIS are ‘sophisticated’ investors.
Understanding investment risks
Or, as the FSA, states in its letter: “Our proposals let providers sell products when they met the terms and conditions set out in law. We are reconsidering if this action is suitable for firms that serve wealthy or sophisticated customers who would be expected to have a better understanding of the risks involved.”
SEIS has been described by Lord Young, the government’s enterprise adviser, as being ‘ridiculously generous’ because it is acknowledged as being one of the world’s most generous tax-incentive investment schemes.
That’s because investors can claim up to 50% relief on their investment in a start-up business worth up to £100,000 against their tax bill.
Investors can also claim tax breaks of 78% on Capital Gains Tax (CGT) and more relief if the venture fails.
The FSA says it will clarify its position on SEIS by April after their proposals have been considered by the Financial Conduct Authority and they will give investment firms time to implement the new rules.
