Shearman & Sterling LLP | FinReg | HM Treasury Publishes Consultation Response on Financial Promotions Regime High Net Worth and Sophisticated Investors Exemptions
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  • HM Treasury Publishes Consultation Response on Financial Promotions Regime High Net Worth and Sophisticated Investors Exemptions

    HM Treasury has published a consultation response and draft statutory instrument on reforms to the high net worth and sophisticated investor exemptions under the financial promotions regime. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services") made amendments to the Financial Promotion Restriction, banning authorized firms from approving the financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or in part. The gateway will apply from February 7, 2024. However, the restriction does not apply where exemptions exist, such as those for high net worth or sophisticated investors.

    HM Treasury consulted on changes to the exemptions to mitigate their misuse and enhance consumer protection. Issues with the use of the exemptions were highlighted in the Treasury Select Committee's report on the failure of London Capital & Finance, which found that even vulnerable and low-income investors were being coaxed into self-certifying as high net worth or sophisticated investors. In light of responses received to the consultation, HM Treasury has determined to:
    • increase the eligibility thresholds for the high net worth individual exemption to: (i) income of at least £170,000 in the last financial year (up from the existing threshold of £100,000); or (ii) net assets of at least £430,000 throughout the last financial year (up from the existing threshold of £250,000);
    • amend the eligibility criteria for the self-certified sophisticated investor exemption by: (i) removing the eligibility criterion of having made more than one investment in an unlisted company in the previous two years, meaning this will no longer be sufficient to qualify as a self-certified sophisticated investor; and (ii) increasing the company turnover required to satisfy the 'company director' criterion to £1.6m (up from the existing threshold of £1m);
    • require businesses to provide details of themselves (e.g., company address, contact information) in communications made in reliance on the exemptions;
    • removing "certified" from the title of the "certified high net worth individual" exemption, as investors no longer need to have third-party certification; and
    • updating investor statements by revising their format, simplifying the language and requiring greater investor engagement by mandating that investors select which specific criterion they meet to satisfy a given exemption.

    These changes will also be applied to the equivalent exemptions for the promotion of collective investment schemes.

    The government plans to bring the changes into force on January 31, 2024, Parliamentary time permitting. There will be no transitional regime. Businesses that have made promotions prior to January 31, 2024, will continue to be able to send follow-up financial promotions to the relevant individual in relation to the same matter for the standard 12-month period without requiring an updated investor statement. New promotions made from January 31, 2024, will need to comply with the new rules, even if they are made to those who have previously received promotions.

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