Seed Enterprise Investment Schemes, www.seis.co.uk, have escaped a government ban that threatened to close the tax breaks to all but a fraction of wealthy and experienced investors.
The closely-related Enterprise Investment Scheme (EIS) also received a stay of execution after much lobbying by financial firms.
Fund managers had been concerned that the axe on risky Unregulated Collective Investment Schemes (UCIS) would include SEIS and EIS as well.
However, after a review by consumer watchdog and regulator the Financial Conduct Authority (FCA), both received a clean bill of health which is likely to trigger a rush of cash as investors look for UCIS alternatives.
The FCA’s concern was UCIS were complicated, high-risk investments that could lead to less-sophisticated investors without a full understanding of the products losing their money.
No protection
UCIS were unregulated, which meant advisers without FCA clearance could sell them and they did not qualify for cash protection under the Financial Services Compensation Scheme.
The investigation was sparked by research that found that only one in four of advised sales were suitable for private investors.
In a stout defence of the industry, many advisors said the FSA was tarring all UCIS investments with the same brush and the investigation and the prospect of a ban had caused confusion among investors.
Dermot Campbell, who is a managing partner of Kuber, an EIS funding platform, said the investigation has hampered funding for EIS.
He said: “There has been a critical impact on EIS fundraising in the last six months because of the uncertainty we have experienced.”
He added that for every advisor who was recommending EIS as an investment vehicle there were five more who were advising against EIS because of the investigation.
New rules
Along with EIS, others schemes will also be allowed to be marketed to private investors and they include real estate investment trusts (REITs), exchange traded products (ETPs), venture capital trusts (VCTs) and overseas investment trusts.
The new rules state that UCIS and other closely-related schemes will now be restricted to institutions, and high net worth investors as well as sophisticated investors only.
Among those schemes being restricted are traded life policy investments, qualified investor schemes (QIS) and special purpose vehicles (SPVs) which make investments in assets which are not shares or bonds.
Christopher Woolard, the FCA’s director of policy risk and research, said that increasing numbers of consumers had been losing huge amounts of money by investing UCIS and similar financial products in recent years so new rules were vital to protect investors.
He added: “After consultation we have taken into account that some of these products will be appropriate for some investors.”
