Have you invested in an unlawful scheme?
What is a UCIS?
Many investors don`t realise that what they have invested their hard-earned cash into is an unlawful scheme because it is unregulated. The Financial Conduct Authority regulate investments such as these and they publish a register of all properly regulated schemes on their website.
So, what constitutes a Collective Investment Scheme?
The Financial Services and Markets Act 2000 (FSMA) says, in s235 that a collective investment scheme means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
You might think that “Property of any description” is extremely wide-ranging and you would be right. In a report produced in 2008 by the Financial Markets Law Committee (c/o the Bank of England” it was said that in the context of a Collective Investment Scheme “Property of any description…… can relate to, for example, real estate, rights under betting contracts or even to ostriches.”
The arrangements must be such that the persons who are to participate (investors) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions. In other words, it is an armchair investment.
The arrangements must also have either or both of the following characteristics—
i) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
ii) the property is managed as a whole by or on behalf of the operator of the scheme.
To summarise, a Collective Investment Scheme will have the following characteristics:
Any arrangements in respect of property of any description.
The investor does NOT have day-to-day control of the investment.
The money is pooled (by the developer / operator).
The property is managed as whole.
It should be regulated by the FCA – if not it is an unlawful UCIS.