January 5, 2023

The Remaining New Financial Promotion Rules for UK Private Fund Managers: Less Than a Month Away

In a previous client alert (New Risk Warning Rules for UK Private Fund Managers: Action Required), we discussed the rules governing the main risk warnings for financial promotions of high-risk investments, which came into force on 1 December 2022. These rules were put forth in PS22/10, published by the UK Financial Conduct Authority (FCA), which, as we mentioned, also contains the bulk of the new rules that will take effect starting 1 February 2023

The most relevant rules for private fund managers are those in the new COBS 4.12B chapter of the FCA Handbook, which repeals the current rules on the promotion of non-mainstream pooled investments (NMPI) in the COBS 4.12 chapter. A manager needs to consider whether and how these rules apply where it offers NMPI to retail investors. This is likely to include family offices, high-net-worth individuals, and employees to whom a manager may be offering carried interest or other employee incentives. If the offers do not extend to retail investors but are limited to professional investors, COBS 4.12B will not be relevant. 

As we discuss further below, the new COBS 4.12B will include rules (some of which are the same as those that currently apply) on:

  • The preliminary assessment of suitability
  • Providing risk warnings
  • Personalised risk warnings and “cooling off periods”
  • Restrictions on monetary and non-monetary benefits


The PS22/10 rules identify Non-Mass Market Investment (NMMI) as a high-risk investment category. NMPI, the promotion of which is currently governed by the rules in the COBS 4.12 chapter of the FCA Handbook, is included as a type of NMMI.

PS22/10 expressly confirms that a unit in an unregulated collective investment scheme and a unit in a qualified investor scheme, as well as interests in long-term asset funds (LTAFs), are NMPIs. With some exceptions for LTAFs, the rules should, therefore, apply to all private funds unless they are marketed as UCITS funds. It is also worth noting that we await the outcome of the FCA’s August 2022 consultation on potentially re-classifying the LTAF in order to extend the LTAF’s investor base to restricted retail investors. This would  allow (in addition to professional investors, certified sophisticated retail and high net worth individuals, and DC pension schemes as either professional investors or using a unit-linked insurance wrapper) restricted retail investors to invest up to 10% of their investable assets (subject to certain conditions being met) into an LTAF or other “restricted mass market investments,” the other class of investments that exists alongside NMMIs.


The starting point in COBS 4.12B (which restates the current COBS 4.12 wording) is the restriction on promoting an NMPI: a firm , such as a manager or distributor/placement agent, must not communicate or approve a financial promotion that relates to an NMPI where that financial promotion is addressed to or disseminated in such a way that it is likely to be received by a retail client.

COBS 4.12 retains the FCA Handbook Glossary definition of a “retail client”, which is more generous than that imported from the Markets in Financial Instruments Directive. It is also worth noting that a retail client may be opted up to a professional client, in which case the retail client restriction will not apply. The FCA’s “Dear CEO” letter, noted in our September 2022 briefing Back to Business: the FCA’s 2022-23 Priorities for Private Fund Managers, makes it clear that the FCA expects a due diligence process connected with client categorisation that prevents investors with a lower-risk appetite from gaining access to (high-risk) investments that do not match their objectives. The FCA’s consumer duty (as noted in our October 2022 briefing, The UK Consumer Duty: Next Steps For Private Fund Managers) reinforces this expectation.

COBS 4.12B will qualify the retail client restriction stating, in effect, that if an investor falls within a category identified in the table in COBS 4.12B, the firm may promote the NMPI to that investor. The restriction does not apply to “excluded communications” of units in an unregulated collective investment scheme (CIS), which are subject to a statutory restriction on promotion; see section 238 of the Financial Services and Markets Act 2000 (FSMA), where a promotion is made to an investor listed in the FSMA (CIS) Order 2001. Together with eight other categories of investors, the list in COBS 4.12B will be the same as that in COBS 4.12 before 1 February and includes:

  • Certified high-net-worth investors
  • Certified sophisticated investors
  • Self-certified sophisticated investors

It is in promotions made to these three types of investors that the requirements below will apply (noting that the COBS 4.12B categories, unlike similar categories in FSMA (CIS) Order, are not limited to retail investors in, for example CIS that invest in private equity, but will available to retail investors in, for example, NMPI that invest in real estate). Given the carve out for “excluded communications”, even though most private funds that are marketed by way of private placement will be exempt from the requirements, they may still need to opt into the requirements, for instance, where they are marketing to less sophisticated investors.


For an investor to fall within the three categories under COBS 4.12B above, the manager must make a preliminary assessment of suitability, which requires that assessment be undertaken before the financial promotion is made to or directed at the recipient.


The manager must ensure that a personalised risk warning and summary of the risks are made available to the investor and that a period of at least 24 hours (the “cooling off period”) is applied before the financial promotion is communicated.

  • The personalised risk warning is substantially the same as that covered in our previous alert, and must be in the following terms (the first sentence only where the warning would otherwise exceed the number of characters permitted by a third-party marketing provider):
  • “[Client name], this is a high-risk investment. How would you feel if you lost the money you’re about to invest?”
  • The rules require the risk warning, when communicated in a digital medium, to have a link in the form of text stating “Take 2 mins to learn more” which, when activated, delivers the risk summary in the Annex to the rules. Where the promotion is not made digitally, the risk summary must be provided in a durable medium (e.g., as part of a private placement memorandum or promotional document that accompanies the memorandum) with other rules that apply.
  • The risk summary must be in the form prescribed in the Annex to the rules unless the firm has identified grounds in the rules for departing from that form, and also comply with rules as to its presentation (e.g., the requirement that the summary be prominently brought to the retail client’s attention, taking into account the content, size and orientation of the financial promotion as a whole). Our previous alert covers the prescribed form.
  • The risk warning must be accompanied by an invitation to the retail client to specify whether they wish to: (i) leave the investment journey; or (ii) continue to receive the financial promotion.
  • The “cooling-off period”, as noted above, is a period of 24 hours before the manager may communicate the financial promotion and, following the cooling-off period, the rules require the manager to invite the retail investor to specify whether they wish to: (i) leave the investment journey; or (ii) continue to receive the financial promotion, with the manager presenting both options with equal prominence.


A manager must not communicate or approve a financial promotion which relates to an NMPI and which offers to a retail client any monetary or non-monetary incentive to invest. The monetary and non-monetary incentives include offering bonuses when investing in a NMPI for the first time, offering bonuses where the client refers another person, offering discounts when investing a particular amount in NMPI, and offering any additional free investments or discounts on investments. Information and research tools do not constitute non-monetary incentives.


Our previous alert covers the contents of risk warnings and risk summary, but note that the rule in COBS 4.12 which came into force on 1 December 2022 will be replaced by the same rules in COBS 4.12B, and are substantially the same as those that came into force on 1 December 2022.

To discuss the contents of this alert, please contact the authors or your usual Goodwin contact.