In August 2014 the FCA announced the introduction of temporary product intervention rules restricting the retail distribution of contingent convertible securities (CoCos). The rules entered into force on 1 October 2014. The FCA then consulted on permanent rules to replace the temporary rules when they expire on 1 October 2015. The FCA also proposed the introduction of new requirements when certain regulatory share capital instruments issued by mutual societies are distributed in the retail market.

The FCA has now published Policy Statement 15/14: Restrictions on the retail distribution of regulatory capital instruments (PS15/14). In PS15/14 the FCA sets out the rules it is implementing following its consultation on restrictions on the retail distribution of regulatory capital instruments (CoCos and mutual society shares).

In PS15/14 the FCA states that it has considered the feedback to its consultation and still believes that the restrictions on retail distribution of CoCos currently in place represent a reasonable and proportionate regulatory response to the significant risk of harm to consumers that it has identified. The FCA has, however, made some changes to the rules relative to the draft it consulted on to take account of some of the feedback it received. Generally, the FCA has changed the scope of the rules so they apply only when firms sell or promote (or approve promotions) to retail clients. Other intermediation activities that give effect to transactions in CoCos will not be in scope of the new permanent rules.

In relation to mutual society shares the FCA notes that feedback was mixed with some respondents arguing that it should not impose any specific requirements on distribution whereas other respondents suggested that mutual society shares should be treated in the same way as CoCos. Other respondents accepted the FCA’s general approach but suggested changes to the proposed rules, mainly relating to record-keeping requirements and the investment ‘cap’ with a number of respondents suggesting the FCA should apply the same figure (10% of net assets) as applicable to direct offer promotions of securities on crowdfunding platforms to ordinary retail investors. The FCA has agreed to change the investment ‘cap’ for ordinary retail investors to 10%.

The new rules, set out in Appendix 1 of PS15/14, come into force later this year – 1 July 2015 for mutual society shares and 1 October 2015 for CoCos.

View PS15/14: Restrictions on the retail distribution of regulatory capital instruments, 12 June 2015