News Story: Regulatory/Financial promotion

On 7 November 2023, HM Treasury published its Response to the earlier Consultation: Financial promotion exemptions for high net worth individuals and sophisticated investors (see FC Feature 15 December 2021) which set out proposals to reform exemptions in the Financial Promotion Order 2005 (FPO 2005) relating to high net worth (HNW) individuals and sophisticated investors. The final changes set out in the response document are reflected in the draft Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 (draft Order), which was laid before Parliament on 6 November 2023.

Proposals for reforming existing exemptions 

The FPO 2005 contains a number of exemptions from the financial promotion restriction in s 21 FSMA 2000. The consultation proposed the revision of three of these exemptions in response to misuse identified by the FCA and to reflect changes in the wider economy and society since they were last reviewed. The FPO 2005 exemptions under review related to certain financial promotions made to:

• certified high net worth individuals (article 48);
• sophisticated investors (article 50); and
• self-certified sophisticated investors (article 50A)

For further information on these exemptions, see Financial promotions, Q&A here.

Changes to the exemptions

In response to feedback received in relation to the consultation, the government is making certain amendments to the respective exemptions in the FPO 2005. The changes are intended to reduce the risk that investors will incorrectly self-certify and to increase understanding of the regulatory protections that investors are foregoing when receiving promotions subject to these exemptions. The amendments to the FPO 2005 include those set out below.

• Increasing the financial thresholds to be eligible for the HNW individual exemption – the income and net assets thresholds are being increased to £170,000 and £430,000 respectively.
• Amending the criteria to be eligible for the self-certified sophisticated investor exemption – the government is removing the criterion of having made more than one investment in an unlisted company in the previous two years and is increasing the company turnover required to satisfy the 'company director' criterion to £1.6 million.
• Requiring businesses to provide appropriate details – businesses will be required to provide identificatory details in any communications made using the exemptions.
• Changing the name of the certified HNW individual exemption – the government plans to remove the reference to certification in the title of article 48.
• Updating the HNW individual and self-certified sophisticated investor statements – the government is updating the format of the statements and simplifying the language, as well as requiring greater investment engagement (ie the prospective investor will be required to select which specific criterion they meet in order to be classified as 'high net worth' or 'sophisticated' and state how they meet the relevant criterion).

Next steps

The revisions proposed in the response document will be implemented through the draft Order (once enacted). Subject to Parliamentary time, the government intends to bring the changes into force on 31 January 2024.

The draft Order also corrects a defect in the Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 (see FC Feature 7 September 2023) ensuring that all of the exemptions to the financial promotions gateway have the intended scope.

First published on the Corporate News Service on 8 November 2023.

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