Changes to financial promotions exemptions for high net worth individuals and sophisticated investors
Changes have come into force from the end of January, amending the financial promotions exemptions for high net worth individuals and sophisticated investors following proposals made by HM Treasury in 2023.
Businesses, investors and promoters relying on the exemptions need to make sure they are aware of the changes and comply with the new requirements.
Since 2001, businesses have been able to raise finance from high-net-worth individuals and sophisticated investors such as business angels without having to comply with the regulatory framework of the financial promotions regime, thanks to certain exemptions in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). However, these exemptions have come under review as not reflecting economic, social, technological and other changes since their introduction over 20 years ago.
Increasing the financial thresholds for high-net-worth individuals
In order to qualify for the high net worth individual exemption, a person must now have:
- income of at least £170,000 in the last financial year, up from £100,000
- net assets of at least £430,000 throughout the last financial year, up from £250,000.
Further, investors have not been required to be certified by a third party for some time, so the exemption’s name will no longer use the term “certified.”
Amended criteria for self-certified sophisticated investors
An investor who has been a director of a company will qualify for the exemption where the company’s turnover is £1.6m in the last two years, up from £1m.
HM Treasury has also removed the old requirement to have made more than one investment in a private company in the previous two years to reflect the ease nowadays with which people can invest in unlisted companies through online investment platforms and the like.
Businesses who want to rely on the exemptions must make information such as their registered number, registered office and contact details available so that investors can carry out basic due diligence on them.
Updated investors statements
HM Treasury has stated its belief that some investors have not been properly engaging with the information given to them prior to investing and, as a result, have been incorrectly certifying themselves. As a result, to better protect investors and ensure they are aware of the lack of regulatory protection they will have as a result of promotions made under the exemptions, the investor statements have been updated to improve the format and simplify some of the language.
Proposed changes to increase the promoter’s responsibility in ensuring the recipients’ status have been shelved, as responses to the HM Treasury consultation indicated that many businesses felt that would be an unacceptable hurdle to obtaining investment and the above changes are sufficient on their own to reduce detriment for investors.
Article 14 of the FPO lets a business make a follow-up promotion relating to the same matter within 12 months of the recipient receiving the first communication, which would allow continued reliance on an exemption already in place. Therefore if a business has made a financial promotion to an individual prior to 31 January 2024 in compliance with the Exemptions, it will continue to be able to engage with them in relation to the financial promotion made and will not need to ask for an updated investor statement.
In all other cases, new financial promotions made from 31 January 2024 onwards will need to be made in accordance with the new exemptions set out above.
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