Two steps forward, one step back

Two steps forward, one step back

A partial reversal of recent amendments to the financial promotion exemptions for High Net Worth Individuals and Self-Certified Sophisticated Investors came into force yesterday.

In its 2024 Spring Budget, the UK Government rolled back some of the changes recently introduced to the criteria for investors to be classified as "high net worth individuals" and "self-certifying sophisticated investors". These investor categories are important because they are among the exempt groups to which non-authorised firms and persons may communicate unapproved financial promotions.

This policy change appears to be in response to calls from members of the tech and venture capital industry criticising the reform as negatively impacting funding for start-ups founded by women or ethnic minority entrepreneurs. The amendments, which came into force on 27 March 2024, do not entirely reverse the previous changes, which only came into effect in January. They do, however, mean that there will now be a subset of potential investors who, for a brief time, would not have qualified as part of these groups, but who now will again.

The position at the start of the year

Prior to 31 January 2024, individuals self-certifying as either "high net worth individuals" or "sophisticated investors" were required to sign a declaration that they fell within the relevant category. High net worth individuals had to declare that they had an income over £100,000 or greater, or net assets (excluding primary residence and pension) of £250,000 or greater (or both), during the immediately preceding financial year.

Self-certifying sophisticated investors could fall within a handful of categories, such as having been a director of a company with at least £1 million annual turnover at some point in the preceding two years.

What changed in January?

On 31 January 2024, two key changes to the form of the declarations for self-certifying high net worth and sophisticated investors, contained within the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the 'Financial Promotion Order' or 'FPO'), came into effect.

First, the relevant monetary-value thresholds were raised. High net worth individuals were now required to state that they had either income over £170,000, or net assets of £430,000 in value, or both. Sophisticated investors, if holding this status on the basis of having been a director of a company over a certain turnover threshold, now had this turnover threshold raised to £1.6 million or greater.

Secondly, the evidentiary requirements were enhanced. High net worth individuals were now asked to state their net income to the nearest £10,000 or the value of their net assets to the nearest £100,000. Likewise, self-certifying sophisticated investors now needed to declare relevant details, such as Companies House information of the company of which they had been a director.

Implementation of the changes announced by the Government in the 2024 Spring Budget

The Government has now made further changes, by virtue of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024, coming into force on 27 March 2024. This partially – but not entirely – rolls back the changes which came into effect on 31 January. The various threshold monetary values have been reduced back to their previous levels prior to 31 January. Additionally, self-certifying sophisticated investors will again be able to rely on having invested in unlisted companies two or more times in the last two years – an option which had initially been removed in the January changes.

However, the enhanced evidentiary declarations remain in place, albeit now reflecting the newly re-reduced thresholds. For example, self-certifying a net income over £100,000 now requires a declaration, to the nearest £10,000, of that income.

What does this mean for prospective investors?

Any individual who would have cleared the relevant thresholds pre-31 January 2024 will, as of 27 March, again be eligible, provided they can still clear that threshold now. Individuals who self-certified in respect of either exempt group during the brief window in which the higher thresholds were in place (up to and including 26 March) are unaffected by the Government's changes. Transitional provisions mean that existing declarations made by these individuals will remain valid up to and including 30 January 2025.

In the case of individuals who self-certified prior to 31 January, unauthorised firms can no longer rely on that existing self-certification to communicate new financial promotions to them (although they may still send follow-ups to promotions originally communicated before 31 January, for a 12-month period from the date on which that individual originally self-certified). Therefore, even though the thresholds have now returned to their earlier levels, investors that last self-certified before 31 January must do so again, using the new self-certification statement.

What does this mean for issuers and other unregulated firms promoting to investors?

After 27 March, the pool of individuals potentially falling within the exempt investor groups will grow considerably, owing to the reduced thresholds. Practically, it is likely this will increase the number of people to whom unauthorised firms may make unapproved promotions.

Firms should note, however, that an individual simply exceeding the relevant threshold(s) or other eligibility criteria is not enough, and never has been. An individual must have actively self-certified that they fall within one of the exempted groups, before they can be treated as such by a firm communicating promotions. Additionally, the FPO still requires that any financial promotion made by an unauthorised firm to exempt groups, in reliance on those exemptions, should contain various risk warnings and statements to the effect that the promotion is targeted only at those groups.


• William Robertson
• Christophe Boucherie
• Poppie Bouch
• Doug Henderson