In a pivotal move, the UK Treasury has released its much-anticipated response to the consultation on financial promotion exemptions applicable to high net worth and sophisticated investors. This development, accompanied by the draft Statutory Instrument, heralds significant changes and reflects the evolving economic and regulatory landscape.

Key Developments and Legislative Changes:

The latest amendment, being the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023, incorporates feedback from an earlier consultation. It aims to refine the framework allowing unauthorised entities to circulate financial promotions to a select group of investors without the oversight of an authorised firm. This group includes certified high net worth individuals, sophisticated investors and self-certified sophisticated investors—collectively referred to as the "Exemptions".

Purpose and Impact:

The Exemptions are critical in empowering SMEs to secure funding from affluent individuals and business angels. However, concerns over potential misuse and questions about their continued relevance in light of dramatic shifts in the economic, social and technological spheres have prompted a re-evaluation.

Enhancements to Investor Eligibility:

In response to the consultation, the Treasury proposes several substantive adjustments:

1. The financial criteria for high net worth individual exemptions will increase, raising income thresholds from £100,000 to £170,000 and net asset requirements from £250,000 to £430,000, excluding primary residences. Additionally, the term 'certified' will no longer precede the high net worth individual exemption.
2. The eligibility benchmarks for self-certified sophisticated investors will be revised to omit the necessity of having made multiple investments in the past two years and to elevate the company turnover threshold for a 'company director' to qualify as a sophisticated investor to a minimum of £1.6m.
3. Businesses leveraging the Exemptions for fundraising will be mandated to provide more comprehensive disclosures in their financial promotions, enhancing investors' ability to conduct fundamental due diligence.
4. Updates to the investor statements for both high net worth and self-certified sophisticated investors will be implemented to promote better engagement and comprehension.

These amendments will also mirror changes in the promotion of collective investment schemes. The legislative process is underway, with the intent to enforce these changes from 31 January 2024 for all new promotions from that date, without any transitional relief.

These updates signify a robust stride toward ensuring that the Exemptions remain fit for purpose, bolstering investor protection while facilitating efficient capital flows to SMEs.