Birketts | Staying Onside: Navigating UK Financial Promotion Rules for US Dealmakers

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For US persons seeking investors in the UK’s vibrant private markets, one of the earliest regulatory hurdles is the UK’s highly prescriptive financial promotion regime.

Under Section 21 of the Financial Services and Markets Act 2000 (FSMA), it is a criminal offence for an unauthorised person — including a US person — to communicate an investment promotion capable of having an effect in the UK unless: (1) the communication is approved by an FCA‑authorised firm; or (2) an exemption under the FSMA (Financial Promotion Order) 2005 (FPO) applies.

Not only is a breach a criminal offence, but any contract entered into as a result of an unlawful financial promotion may be unenforceable, giving the investor a statutory right to seek return of their investment.

Because most US companies seeking UK investors are not FCA‑authorised, they typically seek to rely on an exemption under the FPO. Yet these exemptions are often surprisingly prescriptive and, in practice, may conflict with how US dealmakers are accustomed to engaging with investors. The case study below illustrates how this can play out.

Jessica Caws
Legal Director and Co-Head of Financial Services
Birketts, London Office

Cheryl Tham
Solicitor
Birketts, London Office

Case Study: Selling a UK Football Club — and the Limits of the FPO Exemptions

We recently advised the owners of a UK football club on a proposed sale.  A US based representative was appointed to manage the search for a buyer across both US and UK markets.

The US representative was struck by how detailed — and occasionally inflexible — the UK’s financial promotion rules are when compared with US practice. A particular challenge arose when the football club sought to rely on the high net worth individual (HNWI) exemption under Article 48 of the FPO.

Under this exemption, every communication must include a prescribed statutory risk warning which appears before any other text or images, is in bold black type, is surrounded by a black border and is clearly visible and not obscured or interrupted.

The representative assumed this was an overly conservative legal stance.  As a result, we had to take our client directly through the legislation in order to demonstrate to them that the level of prescription came from the statute.  Ultimately, we identified a format that met statutory requirements and still worked for the client’s commercial goals.

The High Net Worth Exemption (Article 48 FPO)

Article 48 of the FPO provides an exemption for certain financial promotions made to individuals who meet prescribed wealth criteria. It can be used to promote shares or debentures in unlisted companies (including those relating to sports clubs if structed as limited companies) to qualifying individuals.

The exemption applies where:

    1. The communicator believes on reasonable grounds that the recipient is a high net worth individual; and
    2. The recipient has completed and signed the statutory HNWI statement within the last 12 months, confirming:
      • they had annual income of £100,000 or more in the preceding financial year or net assets of £250,000 or more (excluding their primary residence, certain insurance policies and pension withdrawals);
      • they accept the risk of losing all money invested; and
      • they understand the loss of FSMA regulatory protections and redress.

As noted, this communication must include the prescribed risk warning:

  1. set out before any other text or images;
  2. in a font size consistent with the remainder of the communication;
  3. in bold black type;
  4. surrounded by a black border; and
  5. clearly visible and unobstructed.

A Message to our US counterparts

So to dealmakers in the US: please do be patient with your UK lawyers when we insist on strict adherence to these rules. We are navigating legislation that is highly prescriptive, strictly enforced and leaves very little room for creative interpretation.  If you engage with us early, we can ensure that cross-border opportunities don’t falter over technicalities. 

Authors

Jessica Caws
Legal Director and Co-Head of Financial Services
Birketts, London Office
+44 208 137 9864
+44 7977 723826
jessica-caws@birketts.co.uk

Cheryl Tham
Solicitor
Birketts, London Office
+44 203 553 4893
cheryl-tham@birketts.co.uk