The FSA has stepped in to prevent a firm of accountants from operating an unauthorised collective investment scheme.

Upton & Co. Accountants Limited a firm, based in Wakefield and has never been authorised by the FSA, set up a collective investment scheme entitled 'Currency Plan'.

Investors funds were to be used in foreign exchange markets, however after one investor complained the FSA intervened with a court order. Upton are now being forced to pay out £3.717m to investors on a pro-rata basis along with a further £840,000 in monthly payments of £10,000.

What are collective investment schemes?

Many people are blissfully unaware that their "co-operative" or "investment" is actually a collective investment scheme.

Collective investment schemes are regulated by the FSA and defined in section 235 of the Financial Services and Markets Act 2000 (FSMA) as ‘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 the sums paid out of such profits or income’.

The participants of the scheme must not have day-to-day control over the management of the property and the scheme must also have one or both of the following characteristics:

  • The contributions of the participants, and the profits or income out of which payments are to be made to them, are pooled.
  • Someone else manages the property as a whole.

Collective investment schemes can involve assets and unquoted securities as well as cash and listed investments. Whilst most collective investment schemes are unit trusts or authorised investment trusts they can also be used as a popular way for high net worth families to manage assets. 

Burying your head in the sand?

The Insolvency Service gives the following example of an arrangement that is a collective investment scheme:

An example of such a scheme dealt with by the official receiver is that of an ostrich farm where the ostriches were owned individually but several ostriches were kept in one pen. Any eggs that were produced became the collective property of the owners of the ostriches in that particular pen, thus making the business a collective investment scheme.

A company cannot be a collective investment scheme.

 

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