Financial promotion exemptions for high net worth individuals and sophisticated investors: a consultation

Following a consultation in 2021 on proposed revisions to the „financial promotion orders“ as regards the exemption of high net worth individuals and sophisticated investors, the HM Treasury has now published a corresponding response paper. In this response paper, the Treasury summarizes the responses it has received to its consultation and the way forward in this matter.
#### Background
In 2021, the Treasury proposed to adjust the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) and the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060) to make targeted amendments to reflect economic, social and technological changes that have occurred since the exemptions were introduced in 2001 and responding to instances of misuse of the exemptions. The Treasury specifically proposed to
– adjust the net income and net asset thresholds for an exemption to reflect inflation of the last 20 years.
– adjust the criteria for self-certified sophistication: the suggestion was to eliminate the criteria of having one transaction in an unlisted security within the previous two years and to adjust the threshold for investors being directors of a company in terms of annual turnover of that company.
– make adjustments to the responsibility of firms in this context to ensure individuals meet the criteria to be deemed high net worth or sophisticated: the idea was to require firms to have reasonable belief that an individual meets the high net worth and sophisticated investor criteria beyond the signing of such statement and to keep record of evidence for such belief. Also in this context, the Treasury sought to require firms to provide information on their company in ALL communications involving high net worth individuals and sophisticated investors.
– update the high net worth individual and self-certified sophisticated investor statements to simplify language and to require investors to indicate which criteria for the exemption he or she meets.
– change the name of the „certified high net worth individual“ exemption to „high net worth individual“.
#### Finalized changes
In view of the comments received, the HM Treasury will – in large- proceed as proposed. That means that
1. the net income and net asset thresholds for individuals qualifying as „high net worth individuals“ will be adjusted to £170,000 and £430,000, respectively, and
2. the annual turnover of companies whose directors qualify for self-certification will be increased from £1 million to £1.6 million.
All other changes as noted in the proposal will also be implemented as proposed with one exception: The Treasury will refrain from requiring firms to evidence that they have reasonable belief that an individual meets the high net worth and sophisticated investor criteria beyond the signing of such statement. As the Treasury notes, most respondents disagreed with the proposed requirement due to undue burdens on firms and practicability reasons. Furthermore, the Treasury finds that all other changes in large implement those changes needed to ensure that only high net worth and sophisticated investors benefit from the exemption. An adjustment of the requirements is thus not needed.
#### Way forward
The Treasury states that it has laid a new Statutory Instrument before Parliament to implement the changes which it expects to come into force on January 31, 2024.