FCA wins High Court case against 'unlawful' investments

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The Financial Conduct Authority (FCA) has won its battle against two unauthorised investment schemes after the High Court ruled they were to be classed as collectives and therefore must be regulated.

The FCA asked the courts in June last year to find that two alternative investment schemes promoted by Capital Alternatives - rice harvest promoters African Land and carbon credit scheme Reforestation Projects - were acting illegally.

The FCA said the defendants, which include at least 15 other firms, had structured their schemes to try to avoid the need to be regulated by the FCA.

It argued that, while it did not regulate the sale of land, property or carbon credits, it did regulate collective investment schemes (CISs) and a firm must be authorised by it to operate them from the UK.

The High Court last week found the schemes were to be classed as CIS, meaning they fall under the FCA's remit and the firms were acting unlawfully.

FCA director of enforcement and financial crime Tracey McDermott said: "Collective investment schemes are complicated and investors put their money into the operator's hands with no real control over what happens to it.

"This ruling shows even if operators have deliberately tried to structure their scheme to avoid regulation, the court will still look at whether those operating the scheme should in fact be regulated for consumer protection."

The ruling paved the way for the courts to order investor compensation payments from the unauthorised firms.

However, as the judge had granted leave to appeal on certain aspects of the judgment, the FCA said it will have to wait until any appeal hearing and its outcome before it can initiate further action.

Meanwhile, the injunctions placed by the FCA on the firms last July remain in place, meaning the schemes' major assets remain frozen and the firms are prohibited from further promoting the schemes.

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