The FCA/HM Treasury are continuing their sweeping changes to how investment platforms, property companies, unregulated entities and social media/marketing interact with investors when it comes to promoting investments.
The latest proposed changes following HM Treasury’s consultation (read the full consultation response here) focus on designations or the redesignation for High Net Worth's and Sophisticated Investors and how this in turn will impact the financial promotion exemptions for these two categories.
There are some key alterations proposed under the Financial Promotions Order and we’ve listed a summary of those changes below:
The main impact will be on Sophisticated Investors due to the significant alterations to exemptions under the Financial Promotions Order but will also have a bearing on High Net Worth's.
The proposed changes are currently applicable to unauthorised entities, such as property companies seeking funds for bonds and those working in the unregulated space.
There is no immediate impact on regulated firms currently holding a FCA AR or full licence, although some changes will be implemented to investor classification at sign up/updating of details. However, it is difficult to predict how far reaching an impact these changes might have.
KEY TAKEAWAYS
The changes are mainly focused on updating the financial thresholds for the two categories mentioned above:
Net worth/income thresholds have been increased greatly and are now aligned with inflation and set at £170K for annual income and £430K for net assets.
When it comes to declaring net worth/income, the proposed changes are focusing on precise reporting where income is rounded to the nearest £10K and net worth to the nearest £100K.
The option of having made more than one investment in an unlisted company within the past two years (being one of the qualifications of a self-certified sophisticated investor) has now been removed. This will see many former SIs dropping into the retail investor category.
To satisfy the ‘company director’ condition, the company turnover threshold is now £1.6m – a substantial rise from £1m.
Where companies make communications using the exemptions, there will be the requirement to provided company details in the communications (name, address, company no. etc.), to allow prospective investors to carry out some basis DD on the company marketing the investment.
There are also proposed changes to the titles – certified being removed from the High-Net-Worth designation.
Updated forms at the point of sign up to investment platforms etc.
WHEN WILL THESE CHANGES TAKE EFFECT?
HM Treasury is proposing to implement these changes from 31 January 2024, subject to parliamentary time and process. Once implemented, any new financial promotions made post 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. For any promotions made before this date, a business will continue to be able to engage with the relevant individual in relation to the financial promotion made and will not be required to request an updated investor statement.
However, for those using financial promotions to market to a list or client database post 31 January, new declarations will be required to ensure the promotions are made to the correct individual(s) or bodies. Where a database is maintained via an online platform, users will notice some differences with the classification process to ensure lists are accurate.
For all new declarations made post 31 January 2024, the declaration will remain valid for 12 months from the date of signing.
If you need more information on understanding these regulatory changes and how they might impact your ability to connect with, and potentially raise money from investors, then get in touch with us. We offer educational services for wherever you are in your property journey to help you stay ahead of the curve and learn to navigate regulatory and compliance issues with confidence.
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