Changes to financial promotion exemptions announced in Spring Budget 2024

The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No 2) Order 2023 (the “2023 Order”), which introduced changes to exemptions for high-net-worth individuals and sophisticated investors, came into force just under two months ago. Now, the financial promotion landscape is changing yet again, as the Government announced its plans to reinstate the previously applicable criteria as part of the 2024 Spring Budget.

Such changes come in response to the criticisms voiced by start-ups and angel investors and will be implemented under the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (the “2024 Order”) which is set to take effect from 27 March 2024.

Background

Under section 21 of the Financial Services and Markets Act 2000 (“FSMA”), a person must not, in the course of business, communicate an invitation or inducement to engage in an investment activity, unless the promotion has been made or approved by an authorised firm or is exempt. This is commonly known as the financial promotion restriction.

Such restriction is however supplemented by the FSMA Financial Promotion Order 2005 (“FPO 2005”), which incorporates several exemptions to the financial promotion restriction that relate to investments in unlisted companies. Namely, the high-net-worth individual (“HNWI”) exemption (Article 48) and the self-certified sophisticated investor exemption (Article 50A). Essentially, these exemptions permit financial promotions for unlisted companies to be directed at HNWIs or self-certified sophisticated investors without the cost of having to comply with the FSMA regime.

What is changing?

Taking into account industry feedback, the 2024 Order will seek to implement the following changes:

• The HNWI exemption will see a reduction in the financial thresholds needed to qualify for the exemption – this will be lowered to an (i) income threshold of £100,000 and/or[1] (ii) a net asset threshold of £250,000, thereby reinstating the financial thresholds that were in place before the 2023 Order.
• The eligibility requirements for the self-certified sophisticated investor will now extend to:

• • Investors who have made two or more investments in an unlisted company in the last two years; and/or
  • Those who occupied director positions at companies with turnover of at least £1 million in the last two years.

These changes will be implemented by revising the investor statements that prospective investors are required to complete and sign to be eligible for the exemptions.

Will there be a transition period?

Investor statements that conform with the 2023 Order (rather than the revised statements in the 2024 Order) will continue to remain valid until 30 January 2025. Following the end of the transitional period, such statements will cease to have effect.

If you have any queries about this topic, please do not hesitate to get in touch with Daniel Bellau or any member of our Corporate team.

 

[1] Interestingly, the investor statements appended to the 2024 Order refer to “and/or” with regards to the prescribed thresholds, thereby suggesting that you may either rely on the income or asset threshold, or both.

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