Forward to the Past: HNW and Sophisticated Exemptions for UK Investors

On 6 March 2024, following the Chancellor’s budget statement, the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (SI 2024/301) (the March Amendment) was published on legislation.gov.uk. This effectively reverses the changes to the thresholds to meet the high net worth individual and self-certified sophisticated investor exemptions to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO), which came into force on 31 January 2024, as covered in our previous article UK HNW and Sophisticated Investor Exemptions: More Financial Promotion Changes. The reversal comes following industry criticism of the new thresholds, which were seen as having a significant impact on the funding of start-up companies and early-stage venture capital funds, which disproportionately affected women and ethnic minority investors. 

Which of the January Amendments Will Be Reversed?

Following industry criticism of the new thresholds to be eligible for the high-net-worth individual and self-certified sophisticated investor exemptions set out in the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (the January Amendments), the March Amendments reinstate the previous thresholds to be considered a high net worth individual of:

• Income of at least £100,000 in the last financial year (down from £170,000 in the January Amendments)
• Net assets of at least £250,000 throughout the last financial year (down from £430,000 in the January Amendments)

And, in relation to the self-certified sophisticated investor exemption, the March Amendments:

• Reintroduced the criterion of having made more than one investment in an unlisted company in the previous two years
• Reduced the company turnover required to satisfy the “company director” criterion to £1 million (down from £1.6m in the January Amendments)

Other changes introduced in the January Amendments remain in effect. For example:

• Businesses are still required to provide details of themselves (including the company address, contact information, and registration details) in any communications made using the exemptions
• The new title of “high net worth individual” will remain, reflecting the 2005 update to the FPO removing the requirement to be certified by a third party
• The wording of the new high-net-worth individual and self-certified sophisticated investor statements will remain, albeit with the revised thresholds reflected

When Will the Changes go into Effect?

The changes in the March Amendments will come into force on 27 March 2024.

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

 

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