Reference guide: what is an NMPI?

Following the FCA’s consultation Policy Statement 13/3, the Unregulated Collective Investment Schemes And Close Substitutes Instrument 2013 took effect from 1 January 2014.

The instrument prohibits FCA authorised firms from promoting “non mainstream pooled investments” (NPMIs) to retail investors, with limited exceptions.

Here’s a reference guide to what is included in the definition of NMPI.

Meaning of Non Mainstream Pooled Investment

A non mainstream pooled investment is any of the following investments:

Investments included in definition of NMPI

(a) a unit in an unregulated collective investment scheme;

“Collective investment scheme” is defined in section 235 of the Financial Services and Markets Act 2000. It can be summarized as:

(a) 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 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; and

(b) which are not excluded by the Financial Services and Markets Act (Collective Investment Schemes) Order 2001 (SI 2001/1062). (See below: Arrangements excluded from the definition of collective investment schemes).

An unregulated collective investment scheme is a CIS in relation to which the operator has not applied for or obtained FCA authorised or recognised scheme status.

(b) a unit in a qualified investor scheme;

QISs are authorised funds which may only be sold to are intended only for professional clients and for retail clients who are sophisticated investors.

(c) a security issued by a special purpose vehicle, other than an excluded security;

A special purpose vehicle (SPV) is “an issuer whose objects and purposes are primarily the issue of securities”. It therefore does not include a trading company.

“Security” includes shares, debentures and units.

“Debentures” include “any instrument creating or acknowledging indebtedness.”

The term “excluded security” is explained below.

(d) a traded life policy investment;

A TLPI is an investment in relation to which one of the following conditions applies:
(a) it is a traded life policy other than an endowment assurance policy;
(b) its underlying assets are wholly or predominately traded life policies other than endowment assurance policies;
(c) its investment returns, or the issuer’s payment obligations, are linked to, contingent on, or highly sensitive to, the performance of traded life policies other than endowment assurance policies.

(e) rights to or interests in investments that are any of (a) to (d).

Meaning of “excluded security”

An “excluded security” is any of the following investments:

Excluded securities

(a) a security whereby the issuer’s payment obligations to the investor are wholly or predominantly linked to, contingent on, highly sensitive to or dependent on, the performance of or changes in the value of shares, debentures or government and public securities, whether or not such performance or changes in value are measured directly or via a market index or indices, and provided the relevant shares and debentures are not themselves issued by special purpose vehicles;

(b) a covered bond;

A “covered bond” is a bond that is issued by a credit institution which has its registered office in an EEA State and is subject by law to special public supervision designed to give certain protections to bondholders in the event of failure of the issuer.

(c) a share in an investment trust;

(d) a share in a company resident outside the EEA, where that company would qualify for approval as an investment trust by the Commissioners for HM Revenue and Customs under sections 1158 and 1159 of the Corporation Tax Act 2010 if resident and listed in the United Kingdom;

Overseas equivalents of UK investment trusts

(e) a share in a venture capital trust;

(f) a share in a company to which Part 12 of the Corporation Tax Act 2010 (Real Estate Investment Trusts) applies or a member of a group to which that Part applies;


(g) an exchange traded product.

“Exchange traded products” are certain investments which are traded on a regulated market or designated investment exchange.

Arrangements excluded from the definition of collective investment schemes

For reference, here are the headings of the arrangements excluded from the definition of collective investment schemes. (Note that these arrangements may still fall within the definition of non mainstream pooled investments, notably bodies corporate.)

1. Individual investment management arrangements

2. Enterprise initiative schemes

3. Pure deposit based schemes

4. Schemes not operated by way of business

5. Debt issues

6. Common accounts

7. Certain funds relating to leasehold property

8. Certain employee share schemes

9. Schemes entered into for commercial purposes related to existing business

10. Group schemes (where each of the participants is a body corporate in the same group as the operator)

11. Franchise arrangements

12. Trading schemes (relating to arrangements whereby participants should receive, by way of reward, payments or other benefits in respect of the introduction by any person of other persons who become participants)

13. Timeshare schemes

14. Other schemes relating to use or enjoyment of property

15. Schemes involving the issue of certificates representing investments

16. Clearing services

17. Contracts of insurance

18. Funeral plan contracts

19. Individual pension accounts

20. Occupational and personal pension schemes

21. Bodies corporate

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