New promotions rules to affect EIS, crowdfunding and other ‘non-readily realisable securities’

New promotions rules to affect EIS, crowdfunding and other ‘non-readily realisable securities’

New promotions rules to affect EIS, crowdfunding and other ‘non-readily realisable securities’

The FCA has announced that its proposal to restrict the retail promotion of unlisted equity and debt securities will go ahead.
The new rules will affect only direct offer financial promotions: those where the manner of responding to the promotion is specified or those including a form by which a response may be made.
Before making a direct offer financial promotion, firms will now need to check that a retail investor is appropriately certified. In addition to the familiar high net worth and sophisticated investor certificates, a third route of certification has been introduced for retail investors. Individuals who restrict themselves to investing only 10% of their net investible financial assets in ‘non-readily realisable securities’ can also be promoted to.
In addition firms will need to conduct an appropriateness test before allowing any of these certified investors to invest.
The rules will not apply when promotions are sent to retail clients receiving advice or management services or those categorised as ‘venture capital contacts’ and ‘corporate finance contacts’.
The FCA has confirmed that the rules will only apply where there is no, or only a limited, secondary market for the securities being promoted. Equally they will not apply to non-mainstream pooled investments which are already subject to promotional restrictions.
Interestingly, firms have the option of either applying the new rules from 1 April 2014 or continuing with existing rules until 1 October 2014 and then applying the new rules. Although 3 weeks is not a significant amount of time to comply, firms issuing promotions that will last throughout the tax year may decide that it is best to comply from the earlier date.
What this means for you
Promotional material will need to be updated to reflect the new categories of recipient and to enable you to gather the investor data that will be needed in order to undertake the required appropriateness test. Firms will also need internal processes to enable them to undertake meaningful appropriateness assessments using the information gathered.
In addition to hard copy material, the changes are likely to affect your website or those of any third parties that enable application forms to be downloaded by the general public. In this scenario firms should consider whether to remove materials altogether or put up gateways to restrict access to appropriate investors only.
Please contact Bovill if you would like to discuss how we can help.

W: www.bovill.com E: enquiries@bovill.com T: +44 (0)20 7620 8440

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