Reversing the changes to the high net worth individual and self-certified sophisticated investor exemptions - what does this mean for you?

On 12 December 2023, we provided an update on changes to the high net worth individual and self-certified investor exemptions, which came into effect on 31 January 2024.

However, in a surprise move in the Spring budget, tucked away on page 79, it was announced that only months after the new changes had come into force, the government has decided to u-turn and reverse a number of the changes that it had just made.

The new legislation reversing the previous changes comes into force on 27 March 2024. However, firms can still rely on investor statements that complied with the previous changes until 30 January 2025.

 What has been (un)changed?

Changes to the financial thresholds for high net worth individuals

Requirements before 31 January 2024	Requirements after 31 January 2024	Requirements after 27 March 2024
In order to qualify as a high net worth individual an individual must have: A net income of at least £100,000 in the last financial year; or Net assets of at least £250,000 throughout the last financial year.	In order to qualify as a high net worth individual an individual must have: A net income of at least £170,000 in the last financial year; or Net assets of at least £430,000 throughout the last financial year.	In order to qualify as a high net worth individual an individual must have: A net income of at least £100,000 in the last financial year; or Net assets of at least £250,000 throughout the last financial year.

The method for calculating income and assets remains unchanged.

 

Changes to the requirements for self-certified sophisticated investors

Requirements before 31 January 2024	Requirements after 31 January 2024	Requirements after 27 March 2024
In order to qualify as a self-certified sophisticated investor an individual must have: Made more than one investment in an unlisted company in the previous two years; Worked in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises, in the last two years; Been the director of a company with an annual turnover of at least £1million in the last two years; or Been a member of a network or syndicate of business angels for more than six months and still be a member.	In order to quality as a self- certified sophisticated investor an individual must have: Worked in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises, in the last two years; Been the director of a company with an annual turnover of at least £1.6million in the last two years; or Been a member of a network or syndicate of business angels for more than six months and still be a member.	In order to qualify as a self-certified sophisticated investor an individual must have: Made more than one investment in an unlisted company in the previous two years; Worked in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises, in the last two years; Been the director of a company with an annual turnover of at least £1million in the last two years; or Been a member of a network or syndicate of business angels for more than six months and still be a member.

Other changes

The other changes detailed in our previous update remain in place.

How can we help?

Our Financial Services Regulation team has experience advising clients across the financial services sector on compliance with the financial promotion regime, including the application of exemptions, advising on the compliance of individual financial promotions and the compliance and robustness of clients’ processes for the approval of financial promotions.

If you have any queries in relation to this article or compliance with the financial promotion regime, do not hesitate to contact our Financial Services Regulation team to discuss what support we can provide.

Explanatory notes

1. There is a restriction on anyone that is not authorised by the UK regulator communicating a financial promotion (broadly an invitation or inducement to engage in investment activity) unless it has been approved by an authorised person or the communication is exempt. Breaching this restriction is a criminal offence. There is also a restriction on authorised firms issuing financial promotions about collective investment schemes unless the rules in the FCA Handbook are followed or the communication is exempt.
2. The changes are being made to the exemptions for high net worth individuals and self-certified sophisticated investors under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) and the Promotion of Collective Investment Schemes (Exemptions) Order 2001 (PCIS).
3. The exemptions for high net worth individuals and self-certified sophisticated investors are two key exemptions in both the FPO and PCIS which allow financial promotions that relate to unlisted companies (for example, shares in private limited companies) to be communicated to investors that fall into one (or both) of these categories.
4. However, the exemption in article 14 of the FPO relating to follow-up financial promotions is not being changed. As such, if you are communicating a follow-up financial promotion on the same subject matter that you have previously communicated with a particular investor about, you should check whether you are able to rely on this exemption (and therefore not need an updated statement or have to demonstrate compliance with the new exemptions).