UK Government changes to financial promotion exemptions

Who does this impact?

Any firm (regulated or not) relying on exemptions for high net worth individuals or self-certified sophisticated investors.

Background

In general, an individual or business cannot communicate a financial promotion unless either the content of the promotion is approved by a FCA regulated firm or the business is itself FCA regulated. This is referred to as the ‘financial promotion restriction’. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) includes a number of exemptions from the financial promotion restriction, including exemptions for high net worth individuals and self-certified sophisticated investors. These exemptions enable unauthorised individuals or businesses to communicate financial promotions without the involvement of an authorised firm.

In response to growing concern around the use and misuse of these exemptions, particuarly following mis-selling scandals such as London Capital and Finance, in December 2021, HM Treasury launched a consultation focussed on reforming the exemptions, which have not been updated since 2005.

What’s new?

Last week, HM Treasury published the response to the consultation which confirms changes to the exemptions. The changes can be summarised as:

·    Increasing the financial thresholds to be eligible for the high net worth individual exemption to:

• Income of at least £170,000 in the last financial year; or

• Net assets of at least £430,000 throughout the last financial year

·    Amending the criteria to be eligible for the self-certified sophisticated investor exemption by:

• Removing the criterion of having made more than one investment in an unlisted company in the previous two years; and

• Increasing the company turnover required to satisfy the ‘company director’ criterion to £1.6m (i.e. directors of companies with at least £1.6m turnover will remain eligible for the self-certified sophisticated investor exemption).

·    Requiring businesses to provide details of themselves in any communications made using the exemptions

·    Updating the title of the certified high net worth individual exemption by removing ‘certified’

·    Updating the high net worth individual and self-certified sophisticated investor statements

·    Applying these changes to the equivalent exemptions for promotion of collective investment schemes

When do the changes come into effect?

It is intended these changes will apply from 31 January 2024.

What needs to be done?

Firms relying on the exemptions for high net worth individuals or self-certified sophisticated investors should be prepared to comply with the new requirements by this date. In practice, this means updating investor statements, financial promotion policies and, importantly, communicating the changes to staff.

Get in touch if you’d like to discuss these changes in more detail, or would like help implementing the changes.