Navigating the Changing Tides: Exploring New Thresholds in Financial Promotion Rules

Background test

The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) regulates any communication that contains an invitation or inducement to engage in a financial product or service. After a consultation period HM Treasury have announced changes to the current exemptions available under the FPO (Current FPO Exemptions). 

Relevant changes  

In order to qualify for the new “high net worth individual” exemption (New HNW Exemption) an individual must now have: 

• Income of at least £170,000 in the last financial year (previously £100,000), or 
• Net assets of at least £430,000 throughout the last financial year (previously £250,000).

As HNW investors no longer need to be certified by a third party the term “certified” has been removed from the title which is now simply “high net worth individual” 

The eligibility criteria for “self-certified sophisticated investor” exemption (New SSI Exemption) has been amended by: 

• Removing the criterion of having made more than one investment in an unlisted company in the previous two years as it is no longer regarded as a suitable indicator of investor sophistication; 
• Modifying the eligibility criteria required to satisfy the “company director” criterion by increasing the requisite company turnover to £1.6m (previously £1m). The rationale for this is that it will exclude less experienced directors. There is no proposal to re-name the “self-certified sophisticated investor exemption”; and 
• Updating the high net worth individual and self-certified sophisticated investor statements by simplifying the language, updating the format and requiring more engagement to ensure investors do not mistakenly certify themselves or do not understand the regulatory protections they are being asked to waive. This is also designed to assist the FCA in its investigation of potential non-compliance with the New HNW Exemption and New SSI Exemption (together New FPO Exemptions). 

The New FPO Exemptions only apply to a restricted set of investment type, being shares in an unlisted company (or collective investment scheme investing in an unlisted company). 

Date for implementation 

The changes are anticipated as coming into force on 31 January 2024. Article 14 of the FPO allows a company to make a follow-up financial promotion relating to the same matter within 12 months of the recipient receiving the first communication (subject to certain requirements). If the company made a financial promotion to an individual prior to 31 January 2024 in compliance with the Current FPO Exemptions, it will still be able to engage with them on that basis and need not ask for an updated investor statement. 

With effect from 31 January 2024, any new financial promotion, even if made to an individual previously approached under the Current FPO Exemptions, will need to be made in accordance with the New FPO Exemptions. 

Conclusion 

Any company currently using the Current FPO Exemptions must ensure it is compliant with the New FPO Exemptions going forward and only use the updated revised forms of certification. 

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