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Here To Stay? Speculative Illiquid Security rules to be made permanent

Updated: May 19, 2021

This morning the FCA has published the consultation proposing to extend the ban on speculative illiquid securities: CP20/8. This is so that the temporary intervention which applied from 1 January this year is made permanent.

The consultation period runs until 1 October 2020.


It was always the regulator's intention to make the rules within its temporary intervention permanent. What may be a surprise to some, given the amount of feedback already provided by the industry, is how little the scope and detail of these rules have changed since their first iteration.

There are some clarificatory changes which have been put in place to ensure the scope is aligned with the original policy intention and to ensure it makes sense to firms needing to identify whether their investments are in or out. The biggest change however, is widening the scope to include listed bonds where these are not regularly traded.



Following industry feedback, the FCA has identified a number of areas where small changes to their rules would help firms identify when an investment they offer falls within scope. These include:

  • The exemption for companies raising finance for their own purposes where their ability to repay investors is not necessarily linked to the success of the project will be adjusted to make it clearer. This will be helpful to trading businesses looking to finance new developments but who have other income streams from which they can repay the investor.

  • Where the purpose of the SPV is simply to hold one investment for investors, this will no longer be caught in the definition.

  • Social housing projects were impacted by reference in the single property holding vehicle exemption to “commercial rent” and the phrasing in this exemption will be changed to allow for developments offering affordable housing.

  • The wording for the “income generating property” exemption will be updated so that this only applies to pre-existing property and not to developments, and that the SPV must be the sole owner of the property.



Of relevance to all firms who have investment offerings that fall within the now clarified definitions, is that FCA proposes that the non-readily realisable securities rules will not apply alongside the speculative illiquid securities rules. This means that an appropriateness test would no longer be required.

That means that the “preliminary assessment of suitability” will be the main control firms will be expected to have in place to ensure the investment ends up in the right hands. We know that the industry is keen for more guidance on what this means in practice and sadly there is little additional information on this.

The main clarification offered by the FCA in this paper is that firms “should not allow open availability on a website of specific financial promotions, even if subject to an initial warning or ‘tick box’ informing investors an investment is only available to clients who subsequently meet a relevant exemption.”



The FCA remains aware that unauthorised firms may be promoting these investments inappropriately. The language used by the regulator carries a strong warning for such firms and it will need to follow through with this if it is to see the impact it hopes in reducing the numbers of consumers buying speculative illiquid investments.

"Unauthorised persons who communicate financial promotions outside the scope of an FPO exemption, and where the financial promotion is also not approved by an authorised firm, will be in breach of the financial promotion restriction in s21 of FSMA. This is a criminal offence, and carries potential liability of up to 2 years imprisonment, or a fine, or both. We can and will act on unauthorised business or illegal promotions where we see such cases."



As we continue to review the document, we’ll be updating our blog so do keep checking back. We will also be submitting a response to the FCA and where you are impacted by the changes/ lack of changes we would encourage you to do so also whether directly or through trade associations.


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