If you fundraise from individuals, you are likely to need to update your forms.
It's a crime to induce investment in shares and certain other securities unless the promoter is authorised or the promotion is exempt. Most companies and many funds will therefore rely on exemptions when fundraising. The two most common exemptions for promoting the sale or issue of shares to individuals are the exemptions for high net worth individuals (HNW) and sophisticated investors .
High net worth individuals are expected to be sufficiently wealthy to be likely to be able to bear the loss of the investment. Sophisticated investors are expected to be sufficiently experienced to be able to understand the nature and risk of the investment. In each case, an individual can self-certify, but there are statutory requirements to those self-certifications.
The thresholds for self-certifications are changing. The new requirements come into force on 31 January 2024.
The exemptions relating to high net worth individuals and sophisticated investors have not been updated since 2005. As part of a wider reform to the financial promotions regime, the government has proposed reforms to address concerns that:
- There have been significant economic, social and technological changes since 2005 which will impact on the effectiveness of the existing HNW/SI Exemptions
- There has been misuse of these exemptions through which products have been marketed inappropriately to retail investors.
Key Changes to the exemptions
If you rely on these exemptions in making financial promotions, you need to be aware of the following changes:
1. The financial thresholds to be eligible for the high net worth individual exemption are increasing (in line with inflation) to:
- Income of at least £170,000 in the last financial year
- Net assets of at least £430,000 throughout the last financial year
2. The criteria to be eligible for the self-certified sophisticated investor exemption will be amended by:
- Removing the criterion of having made more than one investment in an unlisted company in the previous two years - with the rise of easier online investing making this criteria ineffective
- Increasing (in line with inflation) the company turnover required to satisfy the ‘company director’ criterion to £1.6m (i.e. eligibility for directors of companies with at least £1.6m turnover)
3. Businesses will be required to provide details of themselves in any communications made using the exemptions – to help prospective investors undertake basic due diligence on those marketing investments.
4. The title of the certified high net worth individual exemption will be updated by removing the word ‘certified’ – as certification by a third party is no longer a requirement.
5. The form of the high net worth individual and self-certified sophisticated investors statements will be updated to simplify the language, update the format, and encourage greater investor engagement. You will therefore need to use these revised forms from 31 January 2024.
6. The above changes will apply to the equivalent exemptions for the promotion of collective investment schemes.
A draft version of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No 2) Order 2023 was published on 7 November 2023 to implement these changes.
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