HMT tightens financial promotion exemptions

What’s new?
On 7 November, HM Treasury (HMT) published a consultation response, a draft statutory instrument and an explanatory memorandum amending financial promotion exemptions in the Financial Promotions Order 2005 for high-net worth individuals (HNWI) and self-certified sophisticated investors (SCSI).

The exemptions were last substantively updated in 2005. Since then, there have been significant economic, social and technological changes to the context in which the exemptions operate. In addition, HMT was aware of the exemptions being misused - this included marketing products inappropriately to ordinary retail investors. These issues were recognised by HMT and led to a December 2021 Consultation Paper.

Although HMT believes that legislative exemptions should be retained to support capital raising by innovative SMEs, it considers they need to be tightened to address risks of misuse.

The changes include:
HNWI exemption

• HNWI financial eligibility thresholds would be increased to:
  • income of at least £170,000 in the last financial year (currently £100,000) and
  • net worth of at least £430,000 throughout the last financial year (currently £250,000)

SCSI exemption

• eligibility criteria for the SCSI exemption will be amended to:
  • remove the criterion of having made more than one investment in an unlisted company in the previous two years and
  • increase the company turnover required to satisfy the “company director” criterion to £1.6 million (i.e. directors of companies with at least £1.6 million turnover will remain eligible for the SCSI exemption)

Other changes

• Requiring businesses to provide details of themselves in any communications made using these exemptions
• Updating the title of the “certified high net-worth investor exemption” by removing “certified”
• Updating the HNWI and SCSI statements
• Applying these changes to the equivalent exemptions for promotion of collective investment schemes

Next steps

Subject to parliamentary time, HMT plans to bring new changes into force by 31 January 2024.

HMT envisions that there will be no transitional regime. For financial promotions made before 31 January 2024, Article 14 of the FPO will enable subsequent follow-up financial promotions relating to the same matter within 12 months of the recipient receiving the first communication. Financial promotions made after 31 January 2024 will need to be made using the updated exemptions.