Styperson POPE

Strategy & Compliance for Investment Firms


Planning a Fund

At an early stage of planning a fund (especially if it’s going to end up as an unregulated collective investment scheme) it is vital to balance the regulatory, legal, commercial and marketing aspects of what you want to acheive.  Often initial discussions are with solicitors or with the FSA directly and, unfortunately, they often don’t provide the kind of strategic overview that is needed.

As we hope you have seen from this site, StypersonPOPE isn’t in the business of making things seem unnecessarily complicated (for instance, you may find it helpful to read our articles on Fund Structures and Routes to Promoting a Fund). 

To simplify things further, we now suggest an agenda for a ‘Fund Planning’ meeting.

  • We need to understand your plans;
  • we need to understand the fund’s stage of development;
  • we need to understand the advice you’ve received already;
  • we will give a full picture of the compliance landscape;
  • we will discuss the most appropiate reguatory option for you;
  • we will discuss the routes to market available to the fund;
  • we will advise on the next steps; and
  • we will make introductions to suitable contacts.

We won’t be watching the clock but, from experience, we expect the meeting to take around an hour and a half.  We will follow the meeting with a written note of what we have discussed and further clarification of anything which remains unclear.

If you’d like to get together for a discussion, please  contact StypersonPOPE‘s Managing Director,  Simon Webber, on sw@strategic-compliance.co.uk or +44 (0) 7710 260 717.


Promotion of Unregulated Collective Investment Schemes

As with most types of financial services, people who are not authorised and regulated by the FSA are very restricted in how they can promote an unregulated collective investment scheme.  Unusually even regulated firms are subject to tight restrictions.  The Financial Services and Markets Act 2000 (let’s just call it FSMA), makes it an offence for anyone to promote a scheme to the public:

“An authorised person must not communicate an invitation or inducement to participate in a collective investment scheme.”

Fortunately, for regulated firms, there are a few exemptions, one set is created by Treasury Order and the other by the FSA.

Treasury Exemptions
If an investor falls into one of the categories below, a fund can be promoted to them but the promoter must ensure that the investor falls into the category before making a promotion:

  • Investment Professionals (authorised firms and investment companies);
  • Sophisticated Investors with a certificate signed by an authorised firm covering unregulated schemes; and

  • High Net Worth Companies and Unincorporated Associations.

For some schemes that invest in unlisted securities, authorised firms can also invite High Net Worth Individuals and Sophisticated Investors to self-certify.

FSA Rules
These allow a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

  • individuals for whom the scheme has been assessed as suitable (usually by a financial advisor); and

  • individuals for whom an assessment of experience, expertise and knowledge has been undertaken (sometimes by a financial advisor or the scheme’s Operator).

In these cases, a fund can be promoted to a potential investor on the basis that they will be prevented from investing unless they successfully complete the assessment (which may occur after the promotion has been made).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading.  Summary documents can be used but these also have to meet the rules and must be consistent with all of the other information given to investors.

In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person but only to the relevant categories of exempt investor.  To rely on the FSA’s exemptions, careful procedures will need to be followed by the authorised firms (see our Services For Operators).

If you would like to discuss your plans to market an unregulated collective investment scheme, please contact Simon Webber, StypersonPOPE’s Managing Director, on 07710 260 717 or sw@strategic-compliance.co.uk.

 

 


Data Security in Authorised Firms

In 2008, the FSA made “Data Security” one of their priorities and although they do not lay down rules specific to data security, they expect authorised firms to take it extremely seriously as part of their commitment to establishing effective management systems and controls, and their obligation to treat customers fairly.

The risk of damage to a firm’s reputation and the cost of dealing with lost or stolen client information is bad enough but worse still is the danger that clients may be exposed to identity theft. Even small financial services firms which hold limited data on clients can be targeted by organised criminals or casual opportunists. The greatest threat often comes from the firm’s own staff; database encryption and secure servers are pointless if somebody can take client information away from the office on a CD or accidentally leave their laptop on a train.

The first step in establishing data security, is a performing a risk assessment specific to your business. The advice from the FSA is that:

“If firms think their in-house resources or expertise are inadequate to perform an effective risk assessment, they should consider seeking external guidance.”

Once completed, the risk assessment becomes the foundations on which proper policies and business-specific procedures can be built.

“We were not convinced by firms that claimed to have detailed data security rules but were unable to produce written policies and procedures”

Of course written policies are pointless if staff are not appropriately trained in their use. Because many people wrongly assume that data security is common sense (and because, let’s face it, it’s not a subject naturally dripping with drama), it is important to be creative.

“Our experience shows that many instances of data loss occur because staff do not know or understand relevant policies and procedures.”

Of course, we hope that risk assessments, appropriate procedures and effective training will prevent data loss or theft but if the worst happens, firms must decide how to react and this will probably involve advising those affected, something which must be done carefully but swiftly.

“Firms should consider telling affected consumers exactly what data has been lost, give them an assessment of the risk and give advice and assistance to consumers at a heightened risk of identity fraud.”

For a business-specific risk assessment, help creating suitable procedures, and some effective training on data security, do please give us a call or send us an e-mail.


Types of Investor under FSA rules

If you are a potential investor, we’d be very grateful if you could take 30 seconds to complete the anonymous poll at the bottom of the page to let us know which certificates (if any) you currently hold.

The Financial Services Authority (FSA) categorises individual investors in a number of ways and allows certain firms to promote their services, products, investment schemes and funds to different groups.  These categories include:

An investor may fall into any or all of these categories and may, at the same time, be either a “retail” or “elective professional” client.  An  investor may also fall into one category for a certain instrument (eg shares in unlisted companies) but not for others (eg derivatives).  Also, depending on the structure of the investment (eg an EIS or a Collective Investment Scheme) certain categories may or may not be used.

It’s a complicated overlap of different restrictions, trying to acheive different objectives – if you’re promoting an investment or a regulated service and you need to understand it, please do call or e-mail Simon Webber to talk it through.