4 minute read | November.15.2023
The UK Government is changing two of the most widely used exemptions that determine who is exempt from rules that require regulated firms to issue or approve financial promotion communications. These amendments are expected to come into effect at the end of January 2024. The Government says these changes will bring the exemptions in line with inflation and the modern investing landscape.
Exemptions generally depend on who the recipient is, for example whether a company is communicating with professional investors, high net worth individuals, companies or employees.
In addition, the name of the exemption will no longer include 'Certified.’ It will be called the "High Net Worth Individual Exemption".
To use the Certified High Net Worth Individual exemption or the Self-Certified Sophisticated Investor exemption, the investor is required to sign a statement, in a prescribed form, confirming that they qualify. This statement will be amended in line with the changes above, as well as re-written in simplified language and re-ordered to make it clearer to the investor who qualifies for an exemption. The investor will also be required to confirm how they qualify, for example providing details of their income to the nearest £10,000 or net assets to the nearest £100,000.
The promoter needs to confirm the statement has been signed prior to issuing the promotion. The promoter also must include certain disclaimers in the promotion itself.
Companies issuing financial promotions using these exemptions will need to disclose basic details about themselves, including their address, contact information and registration details (e.g., the Companies House number or international equivalent).
As a technical matter, the changes to these exemptions and statements will also be applied to the legislation providing for exemptions to the promotion of collective investment schemes.
In its Consultation which lead to these changes, the Government had also consulted on shifting responsibility onto the promotions communicator to ensure the investor meets the requirements for exemption. It decided not to proceed with this amendment, although the current requirement remains for the promotions communicator to have reasonable belief that the required statement has been signed.
Before these changes come into force secondary legislation needs to be implemented. While this legislation has been published, the time frame for implementation will be dependent on parliamentary time and procedure. It is expected, however, that these amendments will come into force on 31st January 2024.
Where a financial promotion has been made in reliance on an exemption, subsequent follow up financial promotions relating to the same matter can be made within 12 months of the initial promotion. Therefore, where a firm has issued a promotion to an individual who meets the current definition of Certified High Net Worth Individual or Self-Certified Sophisticated Investor prior to 31st January 2024, the firm can continue to communicate in relation to that promotion without requiring a new statement or the investor to meet the new definition. However, an updated statement, meeting the new criteria, will be required if a new promotion is made after 31st January 2024, even if the individual has previously received a different promotion.