Back in December 2021 the government consulted on revisions to the scope of high-net worth and sophisticated investor exemptions after having been made aware of instances in which these exemptions had been mis-used “leading to investors who are not high net worth or sophisticated being marketed products without the proper regulatory protections afforded by the financial promotions regime.” Reference was made to inflation, greater pension freedoms, the rise of online investing and the emergence of the crowdfunding market making it easier for ordinary retail investors to invest in unlisted securities. The thresholds were to be calibrated to reflect investors’ experience or their ability to absorb losses.

The consultation response was published nearly two years later, in November 2023. Responses were significantly divided concerning revisions to the financial and sophistication thresholds. However the government decided to press ahead with them, as we previously covered here. They came into force on 31 January 2024.

And yet, key elements of those changes are being unwound within two months’ of coming into force. Significant concerns were raised by stakeholders about the potential unintended impacts of the changes on the ability of start-up businesses to obtain investment, and the ability to finance theatre productions through small-scale investors. With effect from 27 March 2024 the previous high net worth individual thresholds will be reinstated (income of £100k back down from £170k; net assets of £250k back down from £430k) and the self-certified sophisticated investor criterion reinstated (having made two or more investments in an unlisted company in the previous two years; company turnover required to satisfy the “company director” criterion of £1 million (back down from £1.6 million)).

Private Intermittent Securities and Capital Exchange System (PISCES)

What?

Announced as part of the Edinburgh Reforms in December 2022, and committed at Mansion House 2023 to establishment by the end of 2024, the government is now consulting on a platform to allow private companies to trade their securities in a controlled environment and on an intermittent basis. PISCES will incorporate elements from public markets, such as multilateral trading, and elements from private markets such as greater discretion on what company disclosures should be made public. The regulatory framework will be developed using a financial markets infrastructure sandbox, as established under the Financial Services and Markets Act 2023.

Why?

The intention is that participating on PISCES will support companies to scale up and grow, providing liquidity, helping shareholders, including employee shareholders, to realise their gains, and providing an opportunity to companies to rationalise their shareholder base. Investors will gain better access to exciting companies while also benefiting from greater transparency and efficiency than available in private markets. Also, it may mean that when these companies decide to publicly trade (on a different platform) and issue new securities as part of an IPO, this will represent less of a regulatory step and there will be greater confidence in their valuation.

Who?

Whilst it is not proposed that general retail investors be able to buy shares on PISCES, the government is considering whether certain categories of retail investors may be permitted to do so including self-certified sophisticated investors, high net worth investors, and employees of a company participating on PISCES.

For shares to be traded on PISCES, they will need to be freely transferable and must not otherwise be admitted to trading elsewhere. Companies will need to undertake the necessary steps to ensure that this is the case, for example agreeing with shareholders to amend their articles of association, if necessary. It will also be possible for companies to have different classes of shares admitted to an auction or trading event on PISCES. The government plans to modify the Companies Act 2006 to ensure that private companies can participate on PISCES.

It remains to be seen whether this proposal will indeed be a key step towards supporting the future pipeline for IPOs in the UK.