With interest rates having been so low for many years (the Bank of England base rate was less than 2 per cent between 2009 and September 2022), it is hardly surprising that some investors turned to unregulated investments in order to chase a higher rate of return.
Unfortunately, some people are now finding it difficult to withdraw money from such investments because the underlying investments may be in assets that are hard to sell at short notice.
‘There are good reasons why financial advisors and financial markets in the UK are tightly regulated by the Financial Conduct Authority (FCA), the most important being the protection it offers to consumers from unscrupulous firms, schemes or advisors,’ says Jalal Mirza-Baig an Associate Solicitor in the civil litigation team with Hatten Wyatt.
Regulated financial schemes are subject to strict borrowing and investment criteria set by the FCA. Unregulated schemes, however, do not face such controls and, although not necessarily illegal, they tend to be very high risk and leave you without FCA protection or access to the Financial Services Compensation Scheme, the Financial Ombudsman Service or the Pension Protection Fund.
Jalal outlines your options if you cannot turn to the regulator or an ombudsman.
Who might offer an unregulated investment?
Unregulated schemes can be offered by outright scammers or legitimate companies, schemes or advisors who are not registered or authorised by the FCA.
One of the most common sources of dispute over unregulated investments, arises where a FCA registered advisor recommends that you invest in an unregulated collective investment scheme (UCIS).
A UCIS is a fund which is not authorised or recognised by the FCA. Several people usually contribute to it with a view to sharing in the profits or income made. The money can be invested into a variety of assets, but tends to veer towards more unusual goods and activities like foreign property, film production, renewable energy and forest plantations.
Whether based abroad or in the UK, the FCA forbids the promotion of such schemes to the UK general public. These should only be offered to certified high-net-worth investors; certified sophisticated investors; or self-certified sophisticated investors. ‘Promotion’ includes face-to-face discussion, phone calls, emails, adverts, websites, presentations and marketing materials.
You can check the FCA Register to see if a scheme is regulated or not, and consult the FCA Warning List to unearth details of unauthorised firms and individuals that are banned from operating in the UK.
What should you do if you feel you have been mis-sold an unregulated investment?
Although a UCIS is not regulated by the FCA and therefore not subject to its jurisdiction, often the financial advisor who advised you to invest in the scheme or those who establish, operate and manage the schemes will be FCA-regulated. If so, you can reach out to the Financial Ombudsman Service for help if a dispute arises. This might be if:
- a firm has promoted or sold you an unregulated investment scheme that is not suitable for you or promoted a UCIS to you unlawfully or without fully explaining the risks;
- your financial advisor advised you to transfer your existing personal pension to a self-invested personal pension (SIPP), which has been partly used to invest in an UCIS;
- your SIPP provider did not perform satisfactory due diligence checks before allowing UCIS investments to be held in the SIPP; or
- you followed your financial advisor’s recommendations and the investment fails, leaving you out of pocket.
If you feel you have been mis-sold or badly advised on an unregulated scheme by someone who is FCA-regulated, you should firstly make a complaint to the financial firm about the advisor involved. If they fail to offer a satisfactory solution you can report them to the Financial Ombudsman Service.
What remedies are available?
The Financial Ombudsman Service will take evidence from both parties before considering the complaint and delivering its findings. If it rules in your favour, it can order the culprit to:
- pay you compensation for financial loss, distress and inconvenience;
- make changes to a credit file if required; and
- require them to handle things differently for you in the future.
Depending on what sort of scheme you got involved in, how you came to invest in it, and the nature of your complaint, you may also be able to claim compensation from the Financial Services Compensation Scheme or the Pension Protection Scheme –although again you will only be eligible to make a claim if someone involved in the advising or mis-selling is FCA-regulated.
If the Financial Ombudsman Service does not have jurisdiction to look at your dispute because, for example, the scheme is based and run abroad and no one involved in recruiting you into the scheme is FCA-regulated, you may be able to obtain help from an equivalent complaints handling body in the country concerned.
If a professional, such as a financial advisor, mis-sold you an unregulated investment that left you out of pocket, our solicitors may be able to go to court and bring a professional negligence claim for compensation against them.
How a solicitor can help
If you are concerned that you have been mis-sold an unregulated investment scheme, talk to our team of experts without delay. We can quickly assess your position and advise you on your options.
We can liaise with the offending business or individual to try and reach a fair settlement for you, or help you prepare your complaint to the Financial Services Ombudsman or an equivalent body overseas.
If you want to take a compensation claim to court, we can prepare all the paperwork, make sure all the required filings are made on time and be at your side to offer advice and representation when you get your day in court.
For further information, please contact Jalal Mirza-Baig in the civil litigation team on 01474 351199 or email advice@hatten-wyatt.com. Hatten Wyatt has offices in Gravesend, Maidstone, Chatham, Tonbridge and Tenterden.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.