The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.7 · Financial Promotions

Article 50 of the Financial Promotion Order provides an exemption for communications made to certified sophisticated investors. It is distinct from the self-certified sophisticated investor exemption under Article 50A, which is covered in article 10.8, and the two are frequently confused. Understanding the difference matters because the conditions, the process, and the practical utility of each exemption are materially different.

The defining characteristic of Article 50 is that the certification must come from an FCA-authorised person, not from the investor themselves. This single feature shapes everything about how the exemption works and where it is practically useful for founders raising capital from individual investors.

What Article 50 Provides

Article 50 provides that the financial promotion restriction does not apply to a communication made to a certified sophisticated investor, provided the communication does not invite or induce the recipient to engage in investment activity with the person who signed the certificate, and provided the communication relates only to the description of investment in respect of which the investor is certified.

Both of the conditions attached to the communication itself are significant and are addressed in more detail below. The exemption is not simply a matter of establishing that the recipient holds a valid certificate. The nature of what is communicated, and the relationship between the communicator and the certifying firm, are also relevant.

Who Qualifies as a Certified Sophisticated Investor

A certified sophisticated investor under Article 50 is a person who holds a current certificate in writing or other legible form signed by an FCA-authorised person, confirming that they are sufficiently knowledgeable to understand the risks associated with a specific description of investment, and who has also signed a statement in the prescribed form within the period of twelve months ending on the date of the communication.

The certificate must therefore come from an FCA-authorised person. This is not a document the investor can produce themselves, nor one that any unqualified adviser or intermediary can provide. It requires an authorised firm to have assessed the individual and formed the view that they are sufficiently knowledgeable about the specific type of investment in question.

The certificate is specific to a description of investment. An investor certified as sophisticated in relation to shares in unlisted securities in early-stage technology companies is not automatically certified in relation to loan notes, convertible instruments, or investments in a different sector. The certification must match the investment being communicated. If your capital raise involves a type of investment not covered by the investor’s existing certificate, a new certificate specific to that investment type is required.

The Three-Year Validity Period

The certificate is current if it is signed and dated not more than three years before the date on which the communication is made. This is a longer validity period than the twelve-month period that applies to the HNW statement under Article 48 and the self-certification statement under Article 50A, and reflects the more substantive assessment involved in obtaining third party certification.

However, the investor must still have signed the accompanying prescribed statement within the preceding twelve months. The certificate and the statement are two separate requirements. A certificate that is within its three-year validity period does not suffice on its own if the accompanying statement is more than twelve months old. Both must be current at the time of the communication.

The Prescribed Statement

The prescribed statement that the investor must sign is set out in Article 50(1)(b) of the FPO. It confirms that the investor is making the statement in order to receive promotions exempt from the financial promotion restriction on the basis that they qualify as a certified sophisticated investor, declares that they qualify in relation to the specific investments listed, acknowledges that the content of promotions received may not have been approved by an authorised person and may therefore not be subject to the controls that would apply if they had been, and confirms awareness that advice is available from a specialist authorised person.

The statement must specifically list the kinds of investment in respect of which the investor is certifying their sophistication. This links back to the investment-specific nature of the underlying certificate. The statement cannot be a generic declaration of sophistication across all investment types. Investor verification records should retain a copy of both the certificate and the signed statement for each investor.

The No-Promotion-to-Certifier Condition

The communication made under Article 50 must not invite or induce the recipient to engage in investment activity with the person who signed the certificate. This condition exists to prevent a conflict of interest where an authorised firm certifies an investor as sophisticated and then uses that certification as the basis for promoting its own products or investment opportunities to them.

For founders using Article 50, this condition is generally straightforward: the certifying firm is an authorised adviser or intermediary, and the communication being made is about your company’s fundraising rather than any product or service offered by the certifying firm. Provided the communication does not invite the recipient to engage with the certifying firm in an investment capacity, this condition should not present a practical obstacle. However it is worth being aware of, particularly if the same authorised firm is both certifying your investors and acting as a placement agent or adviser on your raise.

The Required Indications

Every communication made under Article 50 must be accompanied by a series of prescribed indications. These are that the communication is exempt from the general financial promotion restriction on the ground that it is made to a certified sophisticated investor, that the content has not been approved by an authorised person and that such approval is, unless an exemption applies, required by section 21 of FSMA, that reliance on the communication may expose the individual to a significant risk of losing all of the property invested or of incurring additional liability, and that anyone in doubt about the investment should consult an authorised person specialising in that kind of investment.

These indications must accompany every investor communication. They are not a one-time disclosure made at the point of certification. If you are making multiple communications to the same investor across the course of a raise, for example sending an information memorandum followed by updated financial modelling , each communication must carry the required indications.

Article 50 Was Not Affected by the 2024 Reforms

The reforms introduced in January 2024 and subsequently reversed in March 2024 applied to Articles 48 and 50A. Article 50 was not substantively amended as part of that process. The conditions described in this article reflect the position that has applied since the FPO came into force in its current form and remain current.

How Article 50 Compares to Article 50A in Practice

The requirement for third party certification by an authorised person makes Article 50 more demanding to implement than Article 50A in the context of a founder-led equity fundraising round. Obtaining a certificate from an authorised firm requires that firm to have assessed the individual investor and formed a professional view about their knowledge of a specific investment type. That assessment takes time and typically involves cost.

For most founders raising capital from a pool of individual investors, Article 50A self-certification will be the more practical route for investors who qualify on the basis of their experience and background, with Article 48 covering those who qualify on financial grounds. Article 50 tends to be most relevant where investors already hold certificates issued by authorised firms in the ordinary course of their investment activity, such as investors who are regular participants in private markets and who have been certified by their own advisers or by platforms through which they regularly invest.

Where an investor holds a valid Article 50 certificate covering the relevant investment type and has also signed the accompanying statement within the preceding twelve months, the exemption is available and is robust. The third party certification element provides a stronger evidential foundation than self-certification and is less likely to be challenged if compliance is scrutinised. Marshall Sterling Investment Management recommends retaining copies of all certificates and signed statements as part of your raise compliance records.