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Changes To The Financial Promotion Rules Will Have An Impact

Nov 29, 2023 5:31:35 PM

Update

HM treasury recently consulted on changes to the thresholds for what it means to be wealthy and how time and inflation have impacted upon the measures used since 2005. The response to the consultation, and a new statutory instrument, have now been published.

If your firm currently relies on exemptions in the FPO, you will need to obtain new certificates from your investor base to be able to continue business. You will also need to carefully consider how to treat clients who no longer satisfy the requirements for the certificate they currently hold. The legislation specifies that the investors should have signed the relevant certificate before receiving any kind of financial promotion.

With effect from 31 January 2024:

  • The income threshold for High-Net Worth Individuals will increase from £100,000 to £170,000.
  • The net assets threshold for HNWI will increase from £250,000 to £430,000 (excluding primary residence or pension).
  • A sophisticated investor will no longer be able to rely upon having made previous investments as an indicator of sophistication.
  • A company director can still be sophisticated, but the company turnover proxy for sophistication has increased from £1m to £1.6m.

It should be noted that investors completing the HNWI certificate will have to specify their income/net assets to within the nearest £10,000/£100,000 in order for the certificate to be valid. There are no transitional provisions in place, and existing certificates will not be able to be relied upon after the implementation date. However, if an initial financial promotion has been made before 31st January 2024, there is a 12-month period in which follow-up communications will be permitted under article 14 of the FPO.

For firms regulated by the FCA, it is worth noting that the FCA did not simultaneously publish proposals to update the HNWI and Sophisticated Investor statements required under the COBS rules, however it is usual and expected for the FCA to mirror the FPO, and so an update is expected here shortly.

Firms that currently rely upon the FPO will need to obtain new certificates from their investor base in order to continue business.

Link: https://mbmcommercial.co.uk/resources/blogs/blogs/who-counts-as-wealthy-changes-to-the-financial-promotion-rules-will-have-an-impact-upon-angel-and-venture-capital.html