The UK Financial Promotions regime has been through a plethora of updates in the recent years. In February 2024, a £31,800 fine was imposed on a former director of London Capital & Finance plc for recklessly approving hundreds of misleading financial promotions, leading to significant investor detriment. The FCA’s latest efforts to strengthen its financial promotions framework is aimed at reducing such cases, contributing towards better consumer protection and ensuring greater transparency in financial promotions.
In January 2024, significant changes took effect in relation to the certification process for high net worth individuals (‘HNWI’) and sophisticated investors (‘the January Amendments’). As part of the new rules, the thresholds to qualify for these two exemptions were increased, making it harder for individuals to fall into these categories.
In the Treasury’s Spring Budget 2024 statement, the Chancellor announced the Government’s intention to legislate to reinstate the previous eligibility criteria. The decision to reverse the amendments came in response to industry criticism, with concerns that the new thresholds were harmful to the funding of start-ups and early-stage venture capital, particularly disadvantaging women and ethnic minority investors.
The March Amendment
In response to the criticism of the new thresholds and following the Chancellor’s statement, the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (SI 2024/301) (‘the March Amendment’) was published, which took effect on 27th March 2024. The order reversed the January changes to the eligibility thresholds for HNWI and self-certified sophisticated investors under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) and reinstated the previous thresholds.
The March Amendment changed the following:
- For HNWIs, the thresholds are again:
- An income of at least £100,000 in the last financial year (down from £170,000 in the January Amendments); or
- Net assets of at least £250,000 throughout the last financial year (down from £430,000 in the January Amendments).
- For self-certified sophisticated investors, the March Amendment:
- Reinstated the potential requirement to have made more than one investment in an unlisted company within the past two years, and
- Lowered the company turnover threshold for the “company director” criterion back to £1 million.
It should be noted however, that other changes introduced in the January Amendments will remain unchanged. This includes:
- the requirement to include detailed company information (such as address, contact details, and registration information) in any communications made under these exemptions;
- the designation “high-net-worth individual”, in line with the 2005 update to the FPO, which eliminated the need for third-party certification; and
- the updated wording for the HNWI and self-certified sophisticated investor declarations, though with the revised thresholds.
January 2025 deadline
A potentially unheralded but important effect of the reinstatement of certain criteria for qualification as a HNWI and self-certified sophisticated investor, is that any certificates that were issued under the requirements introduced in the January Amendments will not be effective after 30th January 2025, when the transitional provisions that allowed these certificates to remain active will officially cease to have effect. As a result, these certificates will need to be reissued, following the March Amendments and the relevant criteria.
How can Complyport Help?
Complyport can assist your firm to understand the current rules, as well as their impact to your firm. We can support you by providing:
- Target Market and Risk Disclosure: helping you ensure your financial promotions correctly identify and address target markets, incorporating clear risk disclosures tailored to your audience.
- Financial Promotion Review and Approval: thoroughly reviewing your financial promotions for compliance with applicable regulations, ensuring that they are clear, fair and not misleading, assessing the content against the regulatory standards.
- Promotional Material Development and Compliance Advice: guiding the creation of promotional material, offering compliance insights on language, presentation and required disclosures, supporting you in ensuring your material is informative and compliant.
- Ongoing Monitoring and Reporting: helping you to review your promotional material periodically and ensure that all communications remain compliant over time, identifying trends and areas for improvement to sustain compliant and effective promotions.
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