HM Treasury consultation on financial promotions exemptions

Dec 20, 2021 12:00:00 AM

What has happened?

In December 2021, HM Treasury published a consultation on the financial promotions exemptions for high net worth individuals and sophisticated investors. The consultation considers three exemptions available for retail investors under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO), namely:

Certified high net worth individuals (Article 48 of the FPO),
Sophisticated investors (Article 50 of the FPO), and
Self-certified sophisticated investors (Article 50A of the FPO).

The deadline for comments on the consultation is 9 March 2022.

What are the details of the consultation on financial promotion exemptions?

HM Treasury is consulting on five proposals intended to update the exemptions and to make it more difficult to misuse them.

Increasing the financial thresholds for high net worth individuals. Currently, high net worth individuals are defined as individuals who certify that they have earned at least £100,000 in the previous year or hold net assets of at least £250,000. At a minimum, the Government believes that the thresholds should be increased in line with inflation. Under this approach, the net income threshold to be considered as high net worth would be increased to £150,000 and the net asset threshold to £385,000,
Amending the criteria for self-certified sophisticated investors. One of the criteria to be classified as a self-certified sophisticated investor is to have made more than one investment in an unlisted company in the previous two years. The Government believes that this is no longer an indicator of investor sophistication and that this element should be removed from the self-certified sophisticated investor definition. Another of the tests is that an individual has been in the last two years a director of a company with an annual turnover of at least £1 million. The Government is proposing to update the threshold in line with inflation to a value of £1.4 million,
Placing a greater degree of responsibility on firms to ensure individuals meet the criteria to be deemed high net worth or sophisticated. The Government is proposing that firms communicating the financial promotions compliance must have a reasonable belief that an individual meets the criteria, not simply that they have signed a relevant statement. It would be for the firm to determine how it comes to this conclusion and to document the information accordingly.The Government also proposes that firms should be required to provide details about themselves in any communications made using the exemptions. This would include the firm’s address, contact details and if appropriate, the firm’s Companies House number (or international equivalent),

Updating the high net worth individual and self-certified sophisticated investor statements. The Government is proposing three amendments: updating the format, simplifying the language and requiring greater investor engagement. The Government is proposing that in the updated statement the investor would be required to select which specific criteria they meet in order to be classified as high net worth or sophisticated and to set out how they meet these criteria,
Updating the name of the high net worth individual exemption to the ‘high net worth individual’ exemption, removing “certified” from the title.

How can we help you?

If you’d like to know more about how we can help you with your client categorisation and financial promotions compliance, or with any other regulatory compliance issues, our specialist team is here to help.

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