UK Finalizes Amendments to Financial Promotions Regime High-Net-Worth and Sophisticated Investors Exemptions | Shearman & Sterling LLP
The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 implements the governments’ policy to reform the high-net-worth and sophisticated investor exemptions under the financial promotions regime. The changes are brought in to mitigate the misuse of the exemptions by some firms marketing inappropriate products to ordinary retail customers and to update certain aspects that were introduced about 20 years ago. The Treasury Select Committee’s report on the failure of London Capital & Finance recommended that the exemptions be rethought to ensure greater consumer protection.
The Financial Services and Markets Act 2000 restricts the communication of an “invitation or inducement to engage in investment activity” either in the U.K. or in a way that could have an effect in the U.K., such that these can be made only by regulated firms, subject to certain exemptions. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 provides for exemptions from the restriction, including exemptions for financial promotions of unlisted companies to be made to high-net-worth individuals and self-certified sophisticated investors. The Order makes several changes to the FPO exemptions, including increasing the financial thresholds for high-net-worth individuals, amending the eligibility criteria for the self-certified sophisticated investor exemption and requiring businesses to provide details of themselves in communications made in reliance on the exemptions.
The Order also corrects the Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 to ensure that all the exemptions have the planned scope. The Financial Promotion Gateway Exemptions Regulations set out the exemptions to the new U.K. regulatory gateway (implemented under the Financial Services and Markets Act 2023) for the approval by licensed firms of financial promotions of unlicensed firms.
The Order takes effect on January 31, 2024.
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