Financial Promotions:
New Tests for High Net Worth Individuals and Sophisticated Investors

If you’re an angel investor or raising funds for start-ups, the exemptions for High Net Worth Individuals and Sophisticated Investors are changing.

On 31 January 2024, the thresholds for self-certification as a ‘high net worth individual’ or a ‘sophisticated investor’ are changing.

Under the Financial Services and Markets Act 2000 (FSMA), it is illegal to promote investments in shares or securities to investors, unless the promoter is authorised or the promotion is exempt. Two of the most common categories of exemption are for high net worth individuals or sophisticated investors.

The thresholds for high net worth individuals are going up on 31 January 2024:

– Annual income is increasing from £100,000 to £170,000
– Net assets are increasing from £250,000 to £430,000 throughout the last financial year

For sophisticated investors the definitions are changing:

– The qualification that the investor has made more than one investment in an unlisted company in the previous two years will be removed
– The annual turnover required to satisfy the ‘company director’ qualification is increasing from £1m to £1.6m

The changes are part of a wider set of amendments to the financial promotions regime, which the Government says are necessary due to prevent misuse of the exemptions and marketing to retail investors, as well as to bring the thresholds up to date in line with inflation. Critics have claimed the changes will damage investment by making it harder for start-ups to find funders and turning angel investing into an elite-only activity.

If you are an angel investor or involved in helping companies raise equity and want to know more, please get in touch with Nick Kelly, Richard Ufland, Kate Bennett or Daniel Adams.

Ref: Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023/1411