The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.13 · Financial Promotions

This is the final article in the financial promotions and regulatory boundaries module of The Private Capital Series. The preceding articles have worked through the financial promotion restriction, the principal exemptions, the investor gateway, the appointed representative regime, and how different categories of professional and institutional investor navigate the FPO framework. This article brings those threads together by addressing the question that underlies all of them: when does fundraising actually require FCA authorisation, and when does it not?

It is a question founders approach with a mixture of anxiety and confusion. The anxiety is understandable given the consequences of getting it wrong. The confusion arises because the answer depends on what you are doing, how you are doing it, and who you are doing it with. This article provides a framework for reaching the right answer for your specific circumstances.

Two Separate Questions

As article 10.12 explained, FSMA creates two separate regulatory frameworks that are relevant to capital raising activity. Section 19 restricts the carrying on of regulated activity without authorisation. Section 21 restricts the communication of financial promotions without authorisation or an applicable exemption.

The question of whether FCA authorisation is required therefore has two dimensions. Do the activities involved in your raise constitute regulated activity? And do the communications involved constitute financial promotions that cannot be made under an available exemption? These questions have different answers in different circumstances and must be addressed separately. A founder can be carrying out no regulated activity while still needing to navigate the financial promotion regime carefully. The reverse is equally possible.

Raising Capital for Your Own Business: The General Position

For a founder raising equity capital for their own business by issuing shares to investors, the general position is straightforward. The act of issuing shares in your own company is not, in itself, a regulated activity. The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, known as the RAO, contains an own account exclusion that means dealing in or arranging transactions in your own shares does not constitute regulated activity. You do not need FCA authorisation to issue shares, negotiate the terms of an investment, or close a funding round.

What you do need to manage carefully is how you communicate about the investment opportunity. The financial promotion restriction applies to those investor communications and requires either an applicable FPO exemption, approval from an authorised firm with the gateway permission, or in limited circumstances your own FCA authorisation. For most founder-led raises targeting appropriately categorised investors under Articles 48, 50, or 50A, the financial promotion framework is navigable without FCA authorisation. The exemptions exist precisely to facilitate this kind of startup fundraising activity.

When the Regulated Activity Question Arises

The regulated activity framework becomes relevant to a capital raise in specific circumstances. Understanding those circumstances is the key to knowing whether authorisation is required.

Dealing in investments covers buying, selling, subscribing for, or underwriting investments as principal or agent. Issuing your own shares as principal falls outside the regulated activity perimeter by virtue of the own account exclusion. Acting as agent in transactions involving others’ investments does not.

Making arrangements with a view to transactions is a specified regulated activity covering arrangements that bring about, or would bring about, a transaction in investments. This is broader than arranging deals and can capture activity that facilitates transactions without directly bringing them about. Introducing investors to investment opportunities on a commercial basis, operating a matching platform, or structuring a syndication process may engage this activity depending on the specific facts.

Arranging deals in investments covers bringing about transactions in investments or making arrangements with a view to bringing about transactions. If you are arranging transactions in your own shares the own account exclusion applies. If you are arranging transactions for others, introducing investors to other businesses, or acting as an intermediary between businesses and investors on a commercial basis, you are likely carrying out a regulated activity that requires authorisation or an appointed representative arrangement.

Advising on investments is a separate specified regulated activity. It covers giving personal recommendations to specific individuals about whether to buy, sell, or hold specific investments. Generic educational content about investment principles is not regulated advice. A specific recommendation to a named individual that they should invest in a particular company is regulated advice. For founders presenting their own raise, the regulated advice question rarely arises. Where it becomes relevant is if you are providing guidance to investors about how to structure their investment or whether to participate in a specific round in a way that amounts to a personal recommendation.

Managing investments on a discretionary basis for others is a regulated activity. If your business model involves managing a pool of capital on behalf of investors, whether through a fund structure or otherwise, authorisation is required.

Operating a collective investment scheme is a regulated activity. Structures that involve pooling investor funds for investment on behalf of participants, with returns dependent on the collective performance of the pool, are more likely to engage this framework. Standard share issuance in a trading company does not constitute a collective investment scheme.

The Interaction Between the Two Frameworks

Getting one framework right while neglecting the other is a common compliance failure. A business that has carefully structured its investor communications under Article 50A, obtained valid certifications, and ensured its communications are fair, clear and not misleading has managed the financial promotion dimension well. If that same business is also introducing investors to other companies for a fee, it may simultaneously be carrying out unregulated regulated activity. The financial promotion compliance does not remediate the regulated activity problem.

Conversely, a business that has obtained FCA authorisation for a specific regulated activity should not assume that authorisation resolves all of its financial promotion obligations. FCA authorisation means you can communicate financial promotions in accordance with your permissions and the FCA’s Conduct of Business Sourcebook rules, but those rules impose their own detailed requirements. Authorisation is the beginning of financial promotion compliance for an authorised firm, not the end of it.

When Authorisation Is the Right Answer

Having worked through the circumstances in which authorisation is not required, it is worth being direct about when it is.

If your business model involves arranging deals in investments for others on a commercial basis, and no exclusion applies, authorisation is required. If you are advising specific individuals on specific investment decisions on a commercial basis, authorisation is required. If you are managing investments on behalf of others on a discretionary basis, authorisation is required. If you are operating a collective investment scheme, authorisation is required.

Beyond the regulated activity question, authorisation may also be the right answer for financial promotion purposes if your communications cannot be structured within the available FPO exemptions and the approval route is not practical for your model. Authorisation is also the right long-term answer if you are building a business in the investment ecosystem on a sustained basis and the appointed representative route is either insufficient for your activities or creates dependencies that do not fit your model.

The Application Process in Brief

FCA authorisation requires submission of an application through the FCA’s Connect system. The application requires detailed information about your business model, the regulated activities you intend to carry out, your governance and management structure, your financial resources and projections, your systems and controls for compliance and risk management, and the fitness and propriety of your approved persons and senior managers.

The FCA’s assessment period for a complete application is typically between six and twelve months, though complex applications or those requiring additional information can take longer. The cost includes both the FCA application fee, which varies by firm type and activity, and the ongoing annual fee based on business size and activity. Beyond direct fees, the compliance infrastructure required to operate as an authorised firm represents a material ongoing investment.

For businesses that genuinely require authorisation, these costs are the price of operating within the regulatory perimeter. For businesses that do not require authorisation, they are a reason to ensure you have correctly concluded that authorisation is not required rather than proceeding on an uncertain basis. Marshall Sterling Investment Management recommends taking specific legal or compliance advice before concluding either way if the position is not clear-cut.

A Practical Framework for Founders

Drawing together the analysis across this module, the following framework summarises how to approach the regulatory question for a startup fundraising or SME fundraising round.

Start with the regulated activity question. Are the activities involved in your raise limited to issuing your own shares and managing your own investor relationships? If yes, the own account exclusion means the regulated activity framework is not engaged and authorisation is not required for that dimension. If your activities extend beyond your own raise into facilitating, arranging, or advising on investments for others, analyse whether an exclusion applies and, if not, whether an appointed representative arrangement or direct authorisation is the right solution.

Then address the financial promotion question. Who are you communicating with and what exemptions apply? Map your investor base to the available exemptions, ensure the conditions for each are met, obtain and retain the required investor verification statements, and confirm that the content of your fundraising documents meets the fair, clear and not misleading standard.

Where either analysis reveals a gap, address it before making the relevant communications or carrying out the relevant activities. If either question produces an answer you are uncertain about, take specific legal or compliance advice. The framework this module provides is educational. It is not a substitute for advice tailored to your specific circumstances, and the stakes of getting the analysis wrong are high enough to justify the cost of getting proper guidance.

A Closing Note on This Module

This article concludes the financial promotions and regulatory boundaries module of The Private Capital Series. One related framework that falls outside the scope of this module but is relevant to raises that grow beyond the private placement context is the UK Prospectus Regulation. Where a raise involves a sufficiently large number of investors, crosses certain monetary thresholds, or is structured in a way that constitutes a public offer of transferable securities, a prospectus approved by the FCA may be required. That framework is addressed in a dedicated module later in this series.

The financial promotion regime is subject to ongoing review and development by HM Treasury and the FCA. The 2024 reform and reversal described in earlier articles is a reminder that this is an area of active regulatory attention. Checking that the position described in this module remains current before relying on it for a live capital raise is always advisable. The subsequent modules in this series move from the regulatory framework into the practical mechanics of raising capital: equity structures, constitutional documents, financial modelling, valuation, and the process of running a raise from preparation through to close.