The final changes set out in the response document are reflected in the draft The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 (draft Order), which was laid before Parliament on 6 November 2023. It is anticipated that the changes will come into effect on 31 January 2024.
Background
The FPO sets out several exemptions from the financial promotion restriction contained in section 21 of the Financial Services and Markets Act 2000 (FSMA). The Consultation proposed revising some of the exemptions in response to misuse identified by the FCA and to reflect changes in the wider economy and society since the exemptions were last reviewed. The FPO exemptions under review were those for financial promotions made to:
- certified high net worth individuals (article 48, FPO);
- sophisticated investors (article 50, FPO); and
- self-certified sophisticated investors (article 50A, FPO).
What changes are proposed?
The amendments to the FPO include:
Promotions to high net worth individuals in article 48: increasing the thresholds to be eligible for the high net worth individual exemption in article 48. The income and net assets thresholds are being increased to £170,000 (previously £100,000) and £430,000 (previously £250,000) respectively. The name of the exemption will also be changed, reference to “certified” will be removed from the title.
Amending the eligibility criteria for the self-certificated sophisticated investor exemption in article 50A: removal of the criterion of having made more than one investment in an unlisted company in the previous two years and increasing the company turnover required to satisfy the 'company director' criterion to £1.6 million.
Provide details when the exemptions are used: companies will be required to provide identification details in any communications made using the exemptions.
Changing the statements required to rely on the high net worth individuals and self-certified sophisticated investor exemptions: the format of high net worth individual and self-certified sophisticated investor statements required by articles 48 and 50A respectively has been simplified. The statements will also require greater investor engagement as the individual or prospective investor will be required to select which specific criterion they meet to be so classified as “high net worth” or “sophisticated” and state how they meet the relevant criterion.
When will the changes take effect?
The changes will be implemented through the draft Order, and it is expected that they will enter into force on 31 January 2024.
Where a business has made a financial promotion to an individual before 31 January 2024, in compliance with these exemptions, that business will be able to continue to engage with the relevant individual in relation to the financial promotion made for a period of up to 12 months from when the financial promotion was made (subject to meeting the requirements of article 14 FPO) and will not be required to request an updated investor statement.
New financial promotions made from 31 January 2024, even if made to individuals already promoted to under the current exemptions, will need to be made in accordance with the updated exemptions.