I recently wrote about various changes which had been made to the eligibility criteria for the financial promotion high net worth and self-certified sophisticated investor exemptions. These changes came into effect on 31 January 2024 but less than two months later, the Spring Budget has swept them away.

A financial promotion is a communication that contains an invitation or inducement to engage in a relevant financial product or service. To protect potential investors, the UK has a strict regime governing various types of financial promotions, when, how and to whom they can be made and requiring their prior approval in certain situations. Several exemptions apply which essentially allow financial promotions to be made to anyone who satisfies certain eligibility criteria. Two such exemptions are high net worth individuals and self-certified sophisticated investors. Such individuals must sign investor statements confirming that they satisfy the eligibility criteria. 

At the end of January 2024, various changes were made to the eligibility criteria for these two exemptions on the basis that the financial thresholds were out of date, having been put in place in the early 2000s. As a result of inflation over the last 15 to 20 years, the exemptions were capturing many ordinary retail investors rather than only those investors with the financial backing and expertise for which they were originally designed. 

The reasoning for the about turn, provided in the Government's explanatory memorandum to SI 2024/301, is that significant concerns have been raised since the January changes came into effect about their potential unintended impacts. In particular, the angel investing and technology sectors have flagged that the changes could adversely affect start-up businesses which will find it harder to obtain investment from small-scale investors. With the reduction of the financial thresholds back to where they were before the January changes came into effect, more people will be able to rely on the exemptions and so small businesses will have a wider potential investor base. 

The January eligibility criteria will be reversed with effect from 27 March 2024, although investor statements which have already been made that comply with the January changes will remain valid until and including 30 January 2025. After that date, such investor statements will have no effect and new investor statements will need to be made.

So, from 27 March 2024:

1. high net worth individuals who: (a) have at least £100,000 of income in the previous financial year (from the current  threshold of at least £170,000); or (b) held net assets (excluding a primary residence or pension) of at least £250,000 through the previous financial year (from the current threshold of at least £430,000); and
2. self-certified sophisticated investors who have: (a) made two or more investments in an unlisted company in the previous two years; or (b) been a director of a company with an annual turnover of at least £1 million in the last two years,

will fall within the respective exemption.

The UK financial promotion regime and the exemptions available are a complex area. Please get in touch with your usual Forsters' contact or speak to a member of our Corporate team if you have any queries or would like more detail.