The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 sets out exemptions from the restriction on communicating financial promotions in section 21 of the Financial Services and Markets Act 2000. These include an exemption allowing financial promotions for unlisted companies to be communicated to high-net-worth individuals and self-certified sophisticated investors (as determined by specific eligibility criteria) who are often the kind of people approached by early-stage companies when conducting fundraisings.

To account for inflation and to ensure this exemption continues operating within its intended scope, the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023 (2023 Order) came into force on 31 January 2024, tightening the eligibility criteria by increasing the qualifying financial thresholds and limiting the circumstances in which someone can certify as a sophisticated investor. These changes received sharp pushback from investors and companies, including in the form of an open letter, contending that the 2023 Order heavily curtails an already small pool of investors and could affect the ability of early-stage companies to secure funding.

The Treasury responded with a prompt U-turn, resulting in the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment and Transitional Provision) Order 2024 (2024 Order) which came into force on 27 March 2024. The 2024 Order reverses the changes made by the 2023 Order by: 

For any investor statements signed between the 2023 and 2024 Orders coming into force, the 2024 Order contains transitional provisions to allow such investor statements to remain valid until 30 January 2025. However, after 30 January 2025, investor statements made in compliance with the 2023 Order will have no effect for any purpose.

The 2024 Order is a positive correction for both investors and investees. Companies will not have their available capital pool reduced at a time when startup investments are low, and the disproportionate effects on female and ethnic minority investments are mitigated. The Treasury’s swift reversal of the eligibility criteria changes also highlights the importance placed on encouraging and supporting early stage and small scale investment, and that this, for now, outweighs the concerns of ordinary retail investors being captured by insufficiently rigorous exemptions which led to the 2023 Order. However, these concerns remain somewhat unaddressed, meaning discussions around the financial promotions regime are likely to continue.