The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.5 · Financial Promotions

Article 48 of the Financial Promotion Order provides an exemption for communications made to high net worth individuals. It is one of the two most commonly used exemptions in founder-led and SME fundraising, the other being Article 50A covering self-certified sophisticated investors, which is addressed in article 10.8.

The Article 48 exemption is defined entirely by the financial characteristics of the recipient rather than their investment experience or professional background. Understanding precisely what the exemption requires, what has changed following the 2024 reform and reversal, and where the practical limits lie is essential before relying on it for any investor communication.

What Article 48 Provides

Article 48 provides that the financial promotion restriction does not apply to any communication that is a non-real time communication or a solicited real time communication, is made to an individual whom the communicator believes on reasonable grounds to be a high net worth individual, and relates only to investments of the kind specified in the article.

Three elements of this deserve attention.

Who Qualifies as a High Net Worth Individual

A high net worth individual under Article 48 is an individual who has completed and signed, within the period of twelve months ending on the date the communication is made, a statement complying with Part 1 of Schedule 5 of the FPO, and whose completion of that statement indicates they satisfy the conditions set out in it.

The financial thresholds that must be met are income of at least £100,000 in the financial year immediately preceding the date on which the statement is signed, or net assets of at least £250,000 throughout that financial year. For the purposes of the net assets calculation, the value of the individual’s primary residence and any loans secured on it are excluded, as are pension entitlements. The £250,000 threshold must therefore be met by assets beyond the family home and pension.

These are the thresholds currently in force. They are the pre-reform thresholds reinstated by SI 2024/301 with effect from 27 March 2024, following the reversal of the January 2024 reforms that had briefly raised the income threshold to £170,000 and the net assets threshold to £430,000. The history of that reform and reversal is addressed in more detail below.

The Prescribed Statement

The statement must be in the form set out in Part 1 of Schedule 5 of the FPO. The prescribed form is not optional. It must be completed and signed by the investor, not merely acknowledged. The statement requires the investor to confirm whether they meet the income threshold or the net assets threshold, and to declare that they understand the risks involved in the type of investment to which the communication relates.

The FPO provides that the validity of a statement is not affected by a defect in the form or wording provided the defect does not alter the statement’s meaning and the words shown in bold type in the Schedule are shown in bold in the statement. This gives a limited degree of tolerance for minor formatting variations but does not permit substantive changes to the prescribed content.

The statement is valid for twelve months from the date of signing. A statement signed more than twelve months before the date of the communication does not satisfy the Article 48 conditions regardless of whether the investor’s financial position has changed. Tracking statement expiry dates across your investor base is an essential operational discipline for any capital raise that extends over several months.

The Prescribed Warning

Every communication made under Article 48 must be accompanied by a prescribed warning in the following terms: “The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested.”

The warning must appear at the beginning of the communication, precede any other written or pictorial matter, be in a font size consistent with the remainder of the text, be printed in black bold type, and be surrounded by a black border that does not interfere with the text. It must not be hidden, obscured, or interrupted by any other material.

Where the nature of the communication makes it not reasonably practicable to include the written warning, the warning may be given orally at the beginning of the communication, with an indication that a written version will follow. The written warning must then be sent to the recipient within two business days. This provision is most relevant to solicited real time communications such as telephone calls or video meetings.

Communicator Identification Details

Since January 2024, every communication made under Article 48 must also be accompanied by the full name of the person making the communication or on whose behalf it is made, a postal or electronic address for further enquiries, and where applicable the country of incorporation, registered office address, and company registration number. This requirement was introduced as part of the 2024 reforms and was retained when the threshold changes were reversed. It applies to all Article 48 communications made from 31 January 2024 onwards regardless of the format of the communication. Marshall Sterling Investment Management recommends including these details as a standard element of all fundraising documents sent to investors under this exemption.

The Investments Covered

The Article 48 exemption does not apply to all investment types. It applies only to investments of the kind specified in Article 48(8), which are broadly shares and debt instruments in unlisted companies, instruments conferring rights over such shares or debt, units in collective investment schemes investing predominantly in such instruments, and certain options, futures, and contracts for differences relating to such instruments, provided in each case that the investor cannot incur liability beyond their initial investment.

The scope is therefore well-suited to standard equity fundraising involving ordinary shares, preference shares, convertible instruments, and loan notes in unlisted securities. If your raise involves instruments that fall outside this category, Article 48 may not cover the relevant communications and specific analysis is required.

The 2024 Reform and Reversal

Article 48 was amended with effect from 31 January 2024 by SI 2023/1411, which raised the income threshold to £170,000 and the net assets threshold to £430,000, and made other changes to the prescribed statement format. Those threshold changes were reversed less than two months later by SI 2024/301, which came into force on 27 March 2024 and reinstated the original thresholds of £100,000 income and £250,000 net assets.

Statements signed under the January 2024 regime, reflecting the higher thresholds, remained valid until 30 January 2025. From 31 January 2025 only statements complying with the reinstated thresholds have effect. If you obtained investor verification statements during the brief window between January and March 2024, and those statements have not been renewed since, they will now have expired in any event given the twelve-month validity period.

The prescribed statement format itself was updated as part of the 2024 process. The updated format places the qualifying criteria more prominently and requires clearer risk disclosure. Statements in the pre-2024 format should be reviewed and updated even though the substantive thresholds have reverted, because the format requirements introduced in January 2024 were not reversed along with the thresholds.

The Reasonable Belief Requirement

The exemption requires that you believe on reasonable grounds that the recipient is a high net worth individual. A signed statement in the prescribed form will ordinarily provide the basis for that belief. However the requirement is not purely mechanical. If you have information suggesting the statement is inaccurate, or if you obtained statements without any genuine engagement with whether investors actually qualify, the protection the statement provides is materially weakened.

The thresholds are backward-looking. The statement confirms that the individual met them in the financial year preceding the date of signing, not that they currently meet them. An investor whose financial circumstances have materially deteriorated since the relevant year may have signed a valid statement on the basis of historic figures. This is unlikely to affect most startup fundraising rounds but is worth bearing in mind where you have reason to believe an investor’s position has changed significantly.

Record Keeping

Retain copies of all signed statements together with a record of when each investor communication was made and the basis on which the statement was considered valid at that time. For raises extending over several months, maintain a system for tracking statement expiry dates. A statement signed eleven months ago can still support a communication today. A statement signed thirteen months ago cannot. The discipline of tracking this is not complex but it is non-negotiable if you are running a structured raise capital process over an extended period.