The failure of wine investment funds to the tune of around £100m in the past four years has prompted the industry to set up a regulatory body to police such ventures.
The Wine Investment Association (WIA), which
hopes to revive confidence in the sector as an alternative asset
base, has just launched a consultation exercise setting out a list
of aims that range from safeguarding the public against fraud,
malpractice and misrepresentation to promoting unity and
understanding among wine investment businesses.
It intends to have a new code of practice in
force by February 14, 2013.
The association is aimed at what are seen as
higher-risk businesses with a turnover of less than £20m a year.
Members will have to sign up to a code of practice and undergo an
initial compliance audit to prove their competence and that they
have the necessary processes in place. Thereafter, they will have
to submit to similar audits on an annual basis as well as
supplementary audits in the event of complaints against them.
Mazars LLP have been engaged as
auditors.
"The Compliance Audit will not include the
financial affairs of the member - which are covered variously under
current UK legislation," advises the consultation briefing.
Breaches of the code may result in a range
of sanctions, from a caution to expulsion from the association with
the punishment being publicised via the association's website.
Wine held in bond tops the list of areas of
concern. The draft code proposes that members should only be
allowed to accept orders for wine they already hold in stock or for
which they can show "a valid contract for future purchase",
covering en primeur and other deals.
Client Accounts
Separate client accounts are also deemed
essential. Designated as Customer Storage Accounts, these will
clearly delineate stock owned by clients from that owned by the
company where wines are held in storage on the clients' behalf.
This addresses the problem of client property being absorbed as
company assets in the event of a firm's failure or liquidation.
"Furthermore the member shall
implement processes which ensure that title to any customer's
wine(s) in its custody passes to that Customer as soon as
practicable," states the draft code.
Members will also be held responsible for
clients' wines while in transit under their control.
Financial Services Authority rules currently
do not cover most investment advice related to wine, which means
that investors have no recourse to compensation under those
rules.
Companies that are not regulated by the FSA
cannot give investment advice on regulated or controlled products.
Now the WIA intends to strengthen controls by demanding under its
code that members clearly display the association's standard
disclaimer together with an investment risk warning, on its website
and on all promotional material, whether in electronic or hard copy
form.
Members will also be banned from advising,
suggesting or otherwise encouraging customers or potential
customers to dispose of any regulated product in order to invest in
wine.
And they will also be banned from publishing
any statement or advice concerning the tax status of wine
collections and/or wine disposals, "except where the statement or
advice has already been published by a relevant regulatory or
statutory body, such as HM Revenue & Customs".
Investment advice must include details of
past performance of the stock in question as well as clear
information on commissions and other costs linked to storage and
delivery. Those commissions must appear on all invoices and members
must also notify customers promptly of any change in condition that
might have an effect on the value of their purchase.
"Chronic
mismanagement"
The code also covers issues such as cold
calling, marketing practices and selling techniques, as well as
introducing cooling-off periods for purchasers and details of best
practice.
"Chronic mismanagement within sectors of the
wine industry has left innumerable, helpless creditors out of
pocket," says the WIA.
"Many have invested large parts of their
life savings into the industry, with in some cases amounts between
£50,000 and £180,000, having been convinced of the promising
returns in a time of underperforming stocks and low interest rates.
But, since 2008, over 50 wine investment companies have been thrown
into liquidation after reports from creditors' meetings exposed the
extent of financial mismanagement.
"Records were found to be in such disarray
that the companies were unable to even identify the exact source of
their deficiency. It has been revealed that struggling creditors
may only receive a heartbreakingly meagre 15-20p for every £1 they
invested."
All this has put tackling the issue at
the top of the agenda, and the consultation documents stress the
need for investigations and measures to resolve disputes to be
prompt and effective.
"A crucial element of the Association
Charter is to form an Independent Panel to rigorously oversee the
compliance of the Charter without favour to its members," they
say.
The key documentation is available at www.wineinvestmentassociation.org, with a
closing date for comments of Friday, January 18.
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