ACCREDITATION PRINCIPLES

SOCIF was formed by Syndicators who recognised the importance of consumer protection legislation compliance.

SOCIF is a forum and not an Association. There are no executive roles, and the only formal remunerated position is 'meeting chair' currently Jeremy Blackburn (an experienced sector professional).

Consumer representatives play a vital role, using their experiences and expectations to help ensure SOCIF principles are fair and not burdensome upon businesses entering the sector.

SOCIF is working on a set of fair-trading principles to help protect consumers who buy ownership shares in racehorses and memberships in racing clubs.

SOCIF hopes that businesses entering the sector, will find the principles helpful when constructing their business-to-consumer offers.

SOCIF believes that consumer trust will help create a strategy for industry growth and help ensure a level trading playing field.

SOCIF works with Trading Standards in a bid to help ensure that the principles are fair.

SOCIF hopes that an industry body will adopt the accreditation principles and act as accreditor, however, in the absence of a competent body performing the role, then SOCIF may provide an accreditation service.

Anyone can contribute input to the Forum by submitting suggestions to secretary@socif.co.uk

The following Accreditation Principles are a work in progress and are in no particular order.

1. TERMS & CONDITIONS

Persons forming a shared racehorse ownership arrangement, or forming a racing club, are required to produce a set of terms and conditions, and make them available to potential participants in a durable format, prior to conclusion of agreement to purchase,, regardless of whether or not the offer is for profit or not profit or is a charitable scheme.

Note: For the purposes of Accreditation, 'persons' means an individual, a business or any legal entity.

2. CLARITY IN TERMS & CONDITIONS

The Consumer Rights Act 2015 requires businesses to make terms and conditions transparent, i.e. they should be expressed in plain and intelligible language and if in writing, be legible. Small print within terms and conditions cannot be used to hide the important/critical elements of the consumer offer. Small print must not contradict the large print.

Notes: The BHA appear to claim that some syndicate contracts require the services of a specialist consumer lawyer to establish whether or not the consumer offer is a syndicate (part ownership of a racehorse) or is in reality a racing club (an entertainment - not ownership). The law says that a business must make it easy for customers to read the important elements within terms and conditions and highlight anything that could come as a surprise or may have a significant impact on them. It therefore follows that the same expectation applies to the BHA when assessing the terms prior to approval. The BHA should not be placed in a position that even they require the services of specialists to distinguish a syndicate from a racing club. Enforcers (such as the CMA and Trading Standards) can bring cases to stop the use of unfair terms in business to consumer offers.

3. NOT AN INVESTMENT

Shared ownership arrangements and racing clubs must not portray their participant offers as an investment opportunity.

4. RACING CLUB

SOCIF supports the BHA definition of a 'racing club' - an entertainment associated with one or more racehorses but where the members do not own the horse(s).

SOCIF supports the BHA Rules of Racing relating to the business-to-consumer portrayal of a racing club - setting a clear distinction between what constitutes a racing club and a syndicate.

BHA Regulation update (April 2022):-

"BHA defines a racing club as an entertainment associated with racehorses, where the members acquire no ownership rights to, or lease an interest in, any racehorses. Considering this, promotion must not portray racing club membership as bestowing ownership, part-ownership or leased ownership on any individual - use of the words 'owner' or 'ownership' should be avoided.

Racing clubs should be promoted based on the benefits afforded to members and what their subscription fee grants, such as regular updates from the trainer, days at the yard, the chance to watch the club's horse(s) in action as well as potentially receiving a split of any prize-money won.

It is important to remember that even if prize-money won by the racing club's horse(s) may be shared amongst members, the sale of a membership should not be described as purchasing a 'share in a horse'. The term 'share' implies the member is securing ownership of, or a legal leasehold interest in, a racehorse and should, therefore, not be used when promoting a racing club.

With regard to syndicates, the BHA defines them as a form of shared ownership where the syndicate members own, or lease, an interest in racehorses. As such, the member is purchasing a share in a horse and any promotion should be aligned with that."

5. PARTNERSHIP

Partnerships are private, racehorse ownership arrangements where the partners assume legal responsibility for the horse and for all payments and other associated obligations under the Rules of Racing (for example; the payment of training fees). If one or more partners or their agents, advertise/offer the shared ownership arrangement to consumers, the arrangement becomes a syndicate and should be re-registered as such with the BHA.

SOCIF supports the current BHA definition of a partnership:- "For two or more registered owners that wish to own a horse together. Partnerships are likely to comprise family or friends and allow owners to share in the responsibilities of racehorse ownership."

6. SYNDICATE

A syndicate refers to the division of the ownership (or beneficial ownership) of a racehorse(s), with defined percentage shares amounting to 100%.

The BHA only register/authorise entities in one category and SOCIF supports this. It therefore follows that an entity cannot be a syndicate and a partnership, therefore if a Syndicator wishes to allow partners to join the enterprise, those partners become part of the syndicate and are allocated the appropriate percentage of shares. An example could be 'XYZ Syndicates & Partner' registered racehorse ownership entity with the BHA. In such a case, in the interests of transparency and consumer protection, the partner(s) racehorse ownership percentage must be included in the 100% figure. For example; a partner may own 40% of the horse and the Syndicator may own 60% of the horse. The partner automatically becomes a syndicatee. The 40% has already been allocated and therefore the Syndicator will only be in a position to sell 60% of the horse. Consumers would not be in a position to make an informed purchasing decision if, in reality, it was undeclared that the partner was paying less than the other syndicatees.

SOCIF supports the BHA definition of a syndicate:- "For a group of people coming together to own a horse, but who do not have to be sole owners in their own right. The ownership is managed and set up by a syndicator who is responsible for the syndicate. The syndicate can be formed as a result of a public offering and often comprises a larger number of people than a partnership."

7. SHARES

The sale of 'shares' in a racehorse, is an area that interests 'The Financial Conduct Authority' as well as Trading Standards. The penalties for breaching relevant laws can be severe and therefore much caution is needed. Essentially, unless 'exempted', the sale of racehorse shares and racing club memberships, constitutes a 'collective investment scheme'.

The sale of shares in a racehorse must not be described as, or imply some form of investment opportunity.

SOCIF supports the current BHA advice:- "Before setting up a syndicate, seek independent legal advice to satisfy yourself that (i) the Co-Ownership Entity would not fall within the definition of a "Collective Investment Scheme" as defined in section 235 of the Financial Services and Markets Act 2000 (FSMA); or (ii) an exclusion applies to the Co-Ownership Entity under the FSMA (Collective Investment Schemes) Order 2001."

8. MICROSHARES

A 'microshare' is an unofficial term that applies to a small ownership share in a syndicate. For example; a syndicate where shares are divided into 1000 equal units, each share would represent 0.1% of the whole and is referred to by some as a 'microshare'. The term cannot be applied to the sale of memberships in a racing club.

9. LOGOS

Logos of organisations cannot be used on websites or advertisements to give the impression that they offer some form of consumer protection when they do not. There is currently no known commercial organisation with a recognised code of conduct that protects syndicatee or racing club member payments.

10. SYNDICATE & CLUB NAMES

A name cannot be used to imply that the offer is something that it is not. For example; where the consumer offer has the characteristics of a racing club, a name such as 'Hythe Racing Owners Club' could not be used, as the average consumer may believe that the offer includes some form of racehorse ownership. The same principle applies to trading/business names.

Where the consumer offer involves both a racing club and a syndicate, the two entities must be clearly distinguishable by name with separate terms and conditions. For example; 'Hythe Racing Club' and 'Hythe Racing Syndicates'.

11. VAT

Thirty years ago, the racing industry negotiated a concession scheme with HMRC, allowing consumers to reclaim their racing associated VAT payments.

It is imperative that the racing industry protects the integrity of the VAT concession scheme.

The concession applies to the members of syndicates and partnerships but NOT the members of racing clubs.

It is the Syndicator's role to apply to HMRC for the syndicatee refund on the syndicatee's behalf. This is performed via Weatherbys, using a D2 Application Form (information can be found at weatherbys.co.uk). Weatherbys act as agent for the BHA and as part of their D2 Authorisation process they will need to ensure that the entity is a syndicate and not a partnership (meaning that they will need to scrutinise the terms and conditions of the entity to establish that the consumer offer does not have the characteristics of a racing club). Once Weatherbys are satisfied that the application meets the requirements of the VAT concession scheme, they will officially authorise it and pass the application back to the Syndicator, who will then be in a position to make a refund application to HMRC on behalf of the syndicatees.

The important distinction to remember, in respect of syndication, is that the VAT concession applies only to the payments made by the syndicatees to the Syndicator.

The concession DOES NOT APPLY TO the trading activities of racing club and syndicate businesses because the businesses reclaim their VAT in accordance with normal VAT rules.

12. ACCREDITATION

Successful BHA registration of a syndicate or racing club cannot be portrayed in consumer offers as though the registration is some form of accreditation. For example; a syndicator should not state something like 'BHA registered' as a stand-alone statement, or 'Code of Conduct compliant'. This is because the BHA do not yet appear to have sufficient resources to perform the roles to a standard that consumers may reasonably expect of a 'competent authority' in accordance with the Provision of Services Regulations 2009. SOCIF hopes to help the BHA meet the required standards, as ideally, BHA registration, if adequately resourced, would become the ultimate accreditation.

Note: although a 'Racing Club' is defined by the BHA as an 'ownership entity', this refers to the status of the racing club business, not to the entity's consumer offer or the standing of the racing club members.

13. SATISFACTORY QUALITY / FITNESS FOR PURPOSE

Syndicators should take reasonable steps to ensure that a horse is in a fit enough condition to withstand training at the point they purchase the horse. By subsequently omitting to bring a consumer's attention to material information, for example that a horse has a known injury preventing it from racing, a Syndicator may be committing a criminal offence.

14. SHARE REGISTERS

A Syndicator is required to maintain a 'share register' listing the names of the syndicate members against the relevant share numbers allocated to those persons. For example, in a 50 share syndicate, each share number would be between 1 and 50, therefore if Mr. John Smith purchased share number 24, it would be so recorded in the 'share register' and the syndicate member notified of that unique number in the relevant named racehorse.

Each 'share register' must be open for inspection by a governing authority and, on the understanding that a governing authority does not capture the data for any commercial purpose, the Syndicator will allow a governing authority to contact up to ten randomly selected syndicate members for the purpose of establishing the validity of the relevant shares.

Note: Mobile inspectors are already employed by the BHA to check registers/records at trainers' establishments. These inspectors would need very little training to check Syndicators' share registers, thereby helping to protect industry integrity.

15. VAT STATUS

Where the price of a syndicated share in the ownership of a racehorse is specified in advertisements, websites or any medium, the VAT status (example; plus VAT, inclusive of VAT or not subject to VAT) must be stated. Whereas this may not be a legal requirement in all cases, the existence of the HMRC Racehorse VAT Concession Scheme adds considerable relevance to declaring the VAT status.

16. VAT REFUNDS

Where the Syndicator obtains a VAT refund on behalf of the syndicate member, the whole of that sum must be passed to the syndicate member and not retained in whole or part by the Syndicator, to offset the Syndicator's expenses, save where a comprehensive accounts reporting system is in place, enabling the syndicate member to establish how all costs are accounted for (in other words, where there is total transparency).

17. THIRD PARTY INSURANCE

The Syndicator must have third party insurance in place, to cover the respective liabilities incurred by syndicate members under the Animals Act 1971.

18. LEASING

Where a Syndicator purchases a racehorse, the Rules of Racing permit the Syndicator to form a syndicate where the syndicate members are invited to enter into a leasing arrangement, provided each lease agreement is materially the same and includes full beneficial ownership of the defined percentage share of the racehorse.

Where a racehorse is the subject of a lease arrangement between the legal owner and a lessee(s), a lease form must be completed and lodged with the Registrations Team at Weatherbys.

19. PINHOOKING

Given that pinhooking involves the purchasing of a racehorse with the view to selling it on at a profit, an invitation to consumers to invest in a pinhooking syndicate would automatically render it a 'collective investment scheme' and failure to register the scheme (the syndicate offer) with the FCA would likely be a criminal offence.