HM Treasury amends HNW and sophisticated investor definitions for financial promotions
What has happened?
In November 2023,
What are the key points of the HMT consultation?
The most commonly relied upon exemptions for the promotion of unlisted securities are for certified high net worth investors (HNWI) (under article 48 of the Financial Promotions Order (FPO)) and self-certified sophisticated investors (article 50A of the FPO).
These exemptions help small and medium-sized enterprises to raise finance from sophisticated private investors, or ‘business angels’ without the cost of having to comply with the financial promotions regime.
The response to the consultation, and a new statutory instrument, have now been published. With effect from 31 January 2024:
- the income threshold for categorising as HNWI will increase from £100,000 to £170,000,
- the net assets threshold for categorising as HNWI will increase from £250,000 to £430,000 (excluding the primary residence or pension),
- a sophisticated investor will no longer be able to rely upon having made previous investments as an indicator of sophistication, and
- a company director can still be sophisticated, but the company turnover proxy for sophistication has increased from £1m to £1.6m.
The “Certified High Net Worth Investor” will become a “High Net Worth Investor” and there are new prescribed forms (templates are included in the consultation document) for the relevant certificates to be signed by investors. These will have a clearer format, will include simplified language, and will require greater investor engagement.
It should be noted that investors completing the HNWI certificate will have to specify their income or net assets to within the nearest £10,000/£100,000 in order for the certificate to be valid.
One of the requirements for use of the exemptions was that the financial promotion in question (for example a business plan) was required to have a specified form of warning. Any communication made under the exemptions will now need to be accompanied by the name, address (or email), and company number of the person making the communication, or the person on whose behalf the communication is made (the investee company).
There are no transitional provisions in place and firms will not be able to rely upon existing certificates after the implementation date.
However, if an initial financial promotion has been made before 31 January 2024, there is a 12-month period in which follow-up communications will be permitted under Article 14 of the FPO (by or on behalf of the same person in relation to the same investment).
No new financial promotions may be made under the FPO exemptions after 31 January 2024 unless a revised certificate has been obtained.
The same changes will be made to the certificates required under the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Exemptions) Order 2001 for the marketing of collective investment schemes such as venture capital or EIS funds.
How can we help you?
Thistle Initiatives has supported financial promotion issuers for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.
Are you looking for help with your categorisation of HNW and sophisticated investors, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to email@example.com.