FCA Changes to HNWI and Sophisticated Investor Qualifying Criteria

Effective 31 January 2024, the Financial Conduct Authority (‘FCA’) Handbook’s thresholds on high net worth individuals (‘HNWIs’) and ‘sophisticated investors’ has changed. These changes are a result of the FCA consultation response on financial promotion order (‘FPO’) exemptions for HNWIs, which was published in November last year. These exemptions have not been substantively updated since 2005.

Contributors

Amon Kundagrami
Associate, AIFM

The new thresholds for each of the criteria are;

  • High Net Worth Individuals: The net annual income requirement will increase from £100,000 to £170,000. Additionally, the threshold for net assets will rise from £250,000 to £430,000 or more.
  • Self-Certified Sophisticated Investors: There will no longer be a requirement for individuals to have made more than one investment in an unlisted company in the prior two years. The exemption for company directors will change, requiring the company’s minimum annual turnover to be £1.6 million or greater, from a previous minimum of £1 million.

The exemption for individuals that have been part of a network of business angels, and/or have worked in the private equity or SME finance sector for two years remains unchanged.

If a person relies on the above categories for financial promotion of a non-retail fund, there may also be further regulatory considerations (e.g. the production of a Key Information Document (‘KID’), risk warnings, 24 hour cool off periods, etc) subject to appropriate legal advice as investors in these categories are still a sub-set of retail investors. Alternatively, these investors may very well elect to opt-up to professional status if they meet the MiFID criteria for professional investors for the most straight forward financial promotion.

For fund sponsors that are not regulated to distribute products to “retail” investors, it is important to note these new thresholds especially where they are relying on the relevant FPO exemptions in relation to these investor classes. It is important to note that these thresholds will also be applicable in the context of “friends and family” raises. Appointed Representatives undertaking financial promotions will also be required to consider these new definitions, in case they don’t have permissions to market to pure retail clients.

If you are unsure of how these new changes affect you, whether directly regulated or acting as an appointed representative, please get in touch with us to discuss further.