The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.3 · Financial Promotions

The previous two articles established what a financial promotion is and who the restriction applies to. If you have read them, you will understand that the section 21 restriction is wide, that it applies to you personally, and that communicating an unlawful financial promotion carries serious consequences.

This article is where the picture becomes more practical. For the vast majority of founders and SME owners raising capital without FCA authorisation, the Financial Promotion Order 2005 and its exemptions are the legal framework that makes your fundraise possible. Understanding how the FPO works, and what it actually provides, is the foundation for everything that follows in this module.

What the FPO Does

The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 is secondary legislation made under FSMA. Its primary function is to specify categories of communication that are exempt from the section 21 restriction. If your communication falls within one of those categories, you can make it lawfully without FCA authorisation and without having it approved by an authorised person.

The FPO does not give you a licence to say anything to anyone. Each exemption has specific conditions. Some relate to the characteristics of the recipient. Others relate to the nature of the communication itself. Others depend on the context in which the communication is made. Meeting the general description of an exemption is not enough. You need to satisfy every condition that applies to it.

The Structure of the FPO

The FPO contains over seventy articles, not all of which are relevant to founder-led capital raising. The articles most likely to be relevant to founders and SME owners raising capital are set out below. Each is covered in a dedicated article later in this module.

Article 19 covers communications with investment professionals, including FCA-authorised firms and certain categories of institutional investor.

Articles 28 and 28A cover one-off communications. Article 28 applies to one-off non-real time communications and solicited real time communications. Article 28A applies to one-off unsolicited real time communications and carries an additional condition relating to the recipient’s knowledge of investment risk.

Article 48 covers communications to high net worth individuals who have completed and signed a prescribed statement confirming they meet the relevant financial thresholds.

Article 49 covers communications to high net worth companies, unincorporated associations, and certain trusts meeting specified asset or capital thresholds.

Article 50 covers communications to certified sophisticated investors who hold a current certificate signed by an FCA-authorised person confirming their sophistication in relation to the specific investment type.

Article 50A covers communications to self-certified sophisticated investors who have signed a prescribed statement confirming they meet one of the specified qualifying criteria.

Real Time and Non-Real Time Communications

One of the fundamental distinctions in the FPO is between real time and non-real time communications. The distinction matters because different exemptions apply depending on which category your communication falls into.

A real time communication is one made in the course of a personal visit, telephone call, or other interactive dialogue. It is a live, two-way exchange. A conversation at an investor event, a call with a potential investor, a video meeting: all of these are real time communications.

A non-real time communication is one that is not interactive in that sense. Emails, letters, pitch decks sent in advance of a meeting, website content, and written documents are all non-real time communications. They are sent or published and then received, without immediate interaction.

Within real time communications, there is a further distinction between solicited and unsolicited communications. A solicited real time communication is one made in response to an express request from the recipient. An unsolicited real time communication is one initiated by the communicator. Unsolicited real time communications receive significantly less favourable treatment under the FPO than solicited ones, and several exemptions that apply to solicited communications do not apply to unsolicited ones. The practical implication is clear: cold investor outreach carries more regulatory risk than responding to an investor who has approached you first.

Directed at and Targeting

Several exemptions in the FPO specify not only what conditions the recipient must meet but also require that the communication be directed only at persons who meet those conditions. This creates an obligation to think carefully about targeting before any communication is made.

Sending a communication to a mixed list of recipients, some of whom meet the relevant conditions and some of whom do not, will cause the exemption to fail for the communications sent to those who do not qualify. If your investor list includes a mix of high net worth individuals, sophisticated investors, and people who fall into neither category, you cannot send the same investor communication to all of them under a single exemption and assume you are covered. The discipline this requires means segmenting your investor outreach by category and applying the correct exemption analysis to each segment before any communication is made.

Confirmation and Record Keeping

Several exemptions under the FPO require specific steps to be taken before or at the point of communication. These include obtaining signed statements from recipients confirming they meet the relevant criteria, providing prescribed warnings alongside the communication, and retaining records of the steps taken.

The confirmation and prescribed warning requirements are substantive, not administrative. Failure to obtain the required statement before making a communication means the exemption conditions were not met, and the communication was therefore unlawful regardless of whether the recipient was in fact high net worth or sophisticated.

Since January 2024, all communications made under the Article 48 HNW and Article 50A self-certified sophisticated investor exemptions must also be accompanied by the communicator’s name, address, and company registration details. This requirement was introduced as part of the 2024 reform process and was retained following the reversal of the threshold changes described in articles 10.5 and 10.7. It applies to every communication made under those exemptions, including verbal communications where a written version must follow within two business days. Marshall Sterling Investment Management recommends including these details as standard on all fundraising documents distributed to investors.

The Role of Approval

Where no exemption applies, the alternative is to have the communication approved by an FCA-authorised person with the relevant permission. Since January 2024, authorised firms must hold a specific permission to approve financial promotions for unauthorised persons. This is known as the investor gateway and is addressed in detail in article 10.8.

Approval by an authorised person is not a substitute for understanding the regime. The approval covers the specific communication as drafted. Deviating from the approved content, or using it in a context for which it was not approved, removes the protection it provides.

What the FPO Does Not Do

The FPO exemptions do not make a misleading communication lawful. They do not override other regulatory requirements that may apply to your raise, including anti-money laundering obligations and, where relevant, the prospectus regime. They do not protect you if you meet the letter of an exemption condition while ignoring its purpose.

The FCA takes a purposive approach to the regime and will look beyond technical compliance where the substance of a communication is problematic. Every communication made under an FPO exemption must still be fair, clear and not misleading. That standard applies regardless of which exemption is relied upon and regardless of the sophistication or wealth of the recipient. This applies equally to an information memorandum, a business plan for investors, or any other fundraising documents shared under an exemption.