Thinking of marketing a sale of unlisted shares?… There have been some changes to the Financial Promotions Order you need to know about

On 31 January 2024, changes made to the high net worth individual and self-certified sophisticated investor exemptions contained in the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 ("FPO") came into effect.

The Article 48 high net worth individual and Article 50A self-certified sophisticated investor exemptions are two of the most commonly relied on exemptions of the FPO, particularly for private company fundraisings. Generally, these exemptions allow unauthorised firms to raise money from certain types of investors such as business angels and other high net worth individuals. 

The last time these exemptions were updated was in 2005. However, in 2021 the FCA raised concerns that they were no longer fit for purpose, leading to HM Treasury consulting on some key changes to help prevent misuse of the exemptions and ensure greater investor engagement. 

Following the consultation, HM Treasury published a new statutory instrument which has made the following changes:

• The financial thresholds for high net worth individuals have been increased, requiring either:
  • income of at least £170,000 (previously £100,000) in the last financial year; or
  • net assets of at least £430,000 (previously £250,000) throughout the last financial year.
• The eligibility criteria for a self-certified sophisticated investor have been amended to:
  • remove the requirement of having made more than one investment in an unlisted company in the previous two years; and 
  • increase the company turnover required to satisfy the "company director" requirement to £1.6 million (from £1 million).
• "Certified high net worth individual" has now become "high net worth individual", with new prescribed statement templates indicating that the statement is to be signed and completed by the investor rather than be certified by a third party e.g. an accountant.
• All communications made under the exemptions are to be accompanied by disclosure that includes the name, address (or email), and company number of the person making the communication, or the person on whose behalf the communication is made (the investee company).

The new rules came into effect on 31 January 2024 and there are no transitional provisions in place. However, if an initial financial promotion has been made before 31 January 2024, there is a 12-month period in which follow-up communications will be permitted under Article 14 of the FPO (by or on behalf of the same person in relation to the same investment).

What is the impact?

Hopefully it doesn't come as a surprise, but promoting an upcoming fundraising round or pitching to private individual investors is likely to constitute communication of a financial promotion. Under section 21 of the Financial Services and Markets Act 2000, it is a criminal offence for an unauthorised person to communicate a financial promotion unless they are exempt or the financial promotion is approved by a person authorised by the Prudential Regulation Authority or Financial Conduct Authority. It is therefore important that an exemption under the FPO can be relied on when making such communications, otherwise it could amount to a criminal offence. 

Going forward, when looking to rely on the high net worth individual and self-certified sophisticated investor exemptions, care needs to be taken to ensure that the correct template statements are being used and the relevant risk warnings with disclosures are included on any of your promotions e.g., investor packs and offer documents. This also applies to live interactions with potential investors.  

Please make sure that you have appropriate policies and procedures in place so the updated requirements are complied with, relevant employees are made aware and assessments are undertaken to ensure that your targeted investor population meets the new criteria.