Changes to the financial promotions exemptions regime: HM Treasury confirms its final position
28 November 2023
28 November 2023
HM Treasury has issued a response to its December 2021 consultation on the proposed revisions to the financial promotion exemptions for certified high net worth individuals, sophisticated investors and self-certified sophisticated investors (see our briefing here). These are set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The regime will result in changes to relevant investor statements. Firms relying on these exemptions will need to update their policies and procedures to ensure that they are prepared to comply with the new regime.
Work by the Government in this area forms part of wider initiatives to update the regulatory framework in relation to the UK regulatory framework for financial promotions - such as the financial promotions approval gateway (see Ashurst briefing), which was legislated for in the Financial Services and Markets Act 2023 (see our briefing here), and the updated FCA rules for high risk investments (see our briefing here).
The exemptions contained in the FPO were originally introduced to allow SMEs to raise finance from high net worth individuals without having to comply with the financial promotions regime. The changes proposed in the consultation were designed to reflect economic, social and technological changes that had taken place since the introduction of the exemptions in 2001. There were also concerns that the existing regime was being used by some businesses to markets unsuitable investments to ordinary retail investors.
The changes to the FPO will be effected via the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023.
In light of considerable opposition from respondents, the Government has decided against its proposal of introducing a requirement for firms to believe on reasonable grounds that an investor meets the high net worth or sophisticated investor definitions and to document how they've came to this conclusion. This was designed to place greater responsibility on businesses to ensure that individuals meet the criteria. The Government now considers that changes it has made to the existing regime can address concerns it had in this area.
The Government intends that changes will be brought into force on 31 January 2024. The SI also contains separate amendments to the scope of the exemptions from the financial promotions gateway. New financial promotions made from 31 January 2024 will need to be conducted in accordance with the updated exemptions (even when made to individuals already promoted to under the current exemptions). In accordance with Article 14 of FPO, a business making a financial promotion to an individual before 31 January 2024 in compliance with the exemptions will continue to be able to engage with the relevant individual in relation to the financial promotion made and will not be required to request an updated investor statement.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.