Back in December 2021, we published a short article summarising the UK Government’s consultation on proposed changes to the financial promotions regime in relation to the high net worth and sophisticated investor exemptions. You may recall that proposals are to:-
- increase the financial thresholds for high net work individuals;
- amend the criteria for self-certified sophisticated investors;
- place a greater degree of responsibility on firms to ensure individuals meet the criteria to be deemed high net worth or sophisticated i.e. shifting the burden from those firms believing on ‘reasonable grounds’ that the person has signed the relevant statement to a position where the firm has reasonable belief that the individual meets the criteria;
- update the high net worth individual and self-certified sophisticated investor statements; and
- update the name of the high net worth exemption.
That consultation period closed on 9 March and we await the Government’s response to the feedback. See here for a link to our previous article.
Alongside the UK Government’s consultation which we have referred to above, earlier in 2022 the FCA also published a consultation paper which outlines its proposals for various changes to strengthen financial promotion rules for high-risk investments, including cryptoassets. The proposals target authorised firms which approve and communicate financial promotions and aim to increase consumer protection. The FCA’s consultation paper builds on questions posed in Discussion Paper DP21/1.
This consultation paper proposes to:-
- change the classification of high-risk investments (note this includes plans to rationalise the product categories and introduce the new banners of ‘restricted mass market investments’ and ‘non-mass market investments’);
- change the consumer journey into high-risk investments;
- strengthen the role of firms approving and communicating financial promotions (note the proposals include an ongoing monitoring requirement for firms approving promotions); and
- apply the FCA’s financial promotion rules to qualifying cryptoassets.
Consultation Paper: https://www.fca.org.uk/publication/consultation/cp22-2.pdf
Discussion Paper: https://www.fca.org.uk/publication/discussion/dp21-1.pdf
The FCA consultation closed on 23 March. The FCA intends to publish a Policy Statement and final Handbook rules in summer 2022. They propose to give firms 3 months from publishing final rules to comply with the new requirements for the consumer journey and the new requirements for section 21 approvers.
If (or perhaps rather when) implemented, the changes proposed in both consultations will require fund managers and their advisers to adapt their processes and the contents of any financial promotions and the manner in which sophisticated and high net worth investors are onboarded (and the manner in which high risk investments are promoted). Fund managers, their advisers and firms will therefore wish to keep a close eye on developments here.