Financial promotions exemptions criteria: All change again…
26 March 2024
The Government is scrapping the recent changes it made to the exemptions for high-net-worth individuals and self-certified sophisticated investors under the financial promotions regime. This was announced in the March 2024 Budget, where the Government confirmed it would be introducing legislation to reinstate the previous eligibility criteria to qualify for these exemptions. The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (No. 301), which brings these changes into effect, comes into force on 27 March 2024.
Background
Section 21 of FSMA provides that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity, unless: the promotion is made or approved by an authorised person; or the communication is covered by an exemption. The Financial Promotions Order 2005 (SI 2005/1529) contains various exemptions to this restriction, including the high net worth individual and sophisticated investor exemptions, under which financial promotions by unlisted companies can be made to individuals satisfying certain criteria without having to comply with the financial promotions regime. Equivalent exemptions in relation to collective investment schemes are found in the Promotion of Collective Investment Schemes (Exemptions) Order 2001 (SI 2001/1060).
As explained in our previous briefing, changes were introduced to the financial promotions exemptions regime via the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 (SI 2023/1411) to reflect what the Government considered to be economic and societal changes that occurred since the exemptions where first introduced. The changes consisted of increases to the thresholds to be eligible for the high-net-worth individual exemption; and amending the criteria to be eligible for the self-certified sophisticated investor exemption. Changes were made to the equivalent exemptions for promotion of collective investment schemes set out in the Promotion of Collective Investment Schemes (Exemptions) Order 2001 (SI 2001/1060). The Government also made stylistic changes to the high net worth individual and self-certified sophisticated investor statements. The changes came into force on 31 January 2024.
As a result of concerns raised that changes to the eligibility criteria for the exemptions could impair the ability of small businesses to obtain investment through small-scale investors, the Government is now reversing the changes to these exemptions with the effect that:
1. The financial thresholds to be eligible for the high-net-worth individual exemption is reduced to:
- income of at least £100,000 in the last financial year; or
- net assets of at least £250,000 throughout the last financial year;
2. The criteria to be eligible for the self-certified sophisticated investor exemption has been amended by:
- reinstating the criterion of having made two or more investments in an unlisted company in the previous two years; and
- reducing the company turnover required to satisfy the “company director” criterion to £1 million (individuals who have been directors of companies with at least £1 million turnover in the last two years will remain eligible for the self-certified sophisticated investor exemption).
The SI will reinstate the eligibility criteria in respect of the relevant PCIS exemptions.
Investor statements signed before 26 March 2024 that satisfy the previous criteria introduced via Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 are valid up to 30 January 2025. The updated format for the investor statement remains.
The FCA published a statement in relation to the changes confirming it would continue to work with the Government on improving the financial promotions regime and ensuring access to investment for businesses.
The UK financial promotions regime has seen a number of changes, including the introduction of the gateway for the approval of financial promotions (see Ashurst briefing here), 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).
