The Private Capital Series | Marshall Sterling INVESTMENT MANAGEMENT

Module 10.8 · Financial Promotions

Article 50A of the Financial Promotion Order provides an exemption for communications made to self-certified sophisticated investors. Together with Article 48 covering high net worth individuals, it forms the practical backbone of the financial promotion compliance framework for most founder-led and SME fundraising rounds targeting individual investors.

Unlike Article 48, which qualifies investors on the basis of their financial resources, Article 50A qualifies them on the basis of their investment experience and professional background. And unlike Article 50, which requires certification by an FCA-authorised person, Article 50A allows the investor to self-certify by completing and signing a prescribed statement. That distinction makes Article 50A considerably more accessible in practice, while also placing greater responsibility on both the investor and the communicator to ensure the conditions are genuinely met.

What Article 50A Provides

Article 50A provides that the financial promotion restriction does not apply to any communication that is made to an individual whom the communicator believes on reasonable grounds to be a self-certified sophisticated investor, and that relates only to investments of the kind specified in the article. The exemption applies to non-real time communications and solicited real time communications. It does not apply to unsolicited real time communications.

As with Article 48, the communicator must have a reasonable belief that the recipient qualifies, and the communication must carry both the prescribed warning and the communicator identification details. Each of these requirements is addressed in detail below.

The Qualifying Criteria

A self-certified sophisticated investor is an individual who has signed a statement complying with Part II of Schedule 5 of the FPO within the preceding twelve months. To sign that statement validly, the individual must meet at least one of the following four criteria.

These criteria are designed to identify individuals with genuine experience of private markets and unlisted securities investment. They are not a proxy for wealth. A person with modest financial means but significant relevant investment or professional experience can qualify as a self-certified sophisticated investor. A wealthy individual with no relevant experience cannot self-certify under Article 50A, however substantial their net worth. For investors who qualify on financial grounds, Article 48 is the appropriate exemption.

The 2024 Reform and Reversal

Article 50A was amended with effect from 31 January 2024 by SI 2023/1411. The January 2024 reforms made two significant changes to the qualifying criteria. They removed the criterion of having made more than one investment in an unlisted company in the previous two years, on the basis that the rise of online investment platforms had made this too easy to satisfy to be a meaningful indicator of sophistication. They also raised the company turnover threshold for the director criterion from £1 million to £1.6 million.

Both changes were reversed by SI 2024/301, which came into force on 27 March 2024. The reversal reinstated the unlisted investment criterion and returned the director criterion company turnover threshold to £1 million. The reversal followed significant industry criticism, including concerns that the reforms would restrict the pool of investors available to early-stage businesses and that the removal of the unlisted investment criterion would disqualify many experienced angel investors.

Statements signed under the January 2024 regime remained valid until 30 January 2025. From 31 January 2025, only statements complying with the reinstated criteria have effect. If you obtained investor verification statements during the brief window between January and March 2024, those statements will now have expired in any event given the twelve-month validity period.

One element of the January 2024 reforms was not reversed: the requirement for the communicator to include their identification details in every communication made under the exemption. This requirement, introduced alongside the updated prescribed statement format, continues to apply. It is addressed further below.

The Prescribed Statement

The self-certification statement must comply with Part II of Schedule 5 of the FPO. It must be signed and dated by the investor. It must identify which of the four qualifying criteria the investor meets. The prescribed format requires the criteria to be presented prominently, with the investor actively engaging with each criterion rather than simply signing at the foot of a document.

The statement is valid for twelve months from the date of signing. As with Article 48, a statement signed more than twelve months before the date of the communication does not satisfy the Article 50A conditions regardless of whether the investor continues to meet the qualifying criteria. Fresh statements must be obtained before expiry where the capital raise continues beyond the twelve-month period.

The FPO provides that the validity of a statement is not affected by a defect in 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 used. This gives limited tolerance for minor variations but does not permit substantive changes to the prescribed content or the omission of required elements.

The Prescribed Warning

Every communication made under Article 50A must carry the same prescribed warning as Article 48: “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 same format requirements apply: the warning must appear at the beginning of the communication, precede any other written or pictorial matter, be in black bold type, and be surrounded by a black border. Where the nature of the communication makes written inclusion not reasonably practicable, the warning may be given orally at the outset with a written version sent within two business days. This applies equally to investor communications sent digitally, including by email.

Communicator Identification Details

Every Article 50A must be accompanied by the prescribed warning and the communicator’s full name, an address for further enquiries, and, where applicable, the country or territory of incorporation, registered office address, and company number. This applies to Article 50A communications made from 31 January 2024 onwards, and SI 2024/301 did not reverse that requirement. Marshall Sterling Investment Management recommends including these details as a standard footer on all fundraising documents distributed to investors under this exemption.

The Investments Covered

Article 50A covers the same category of investments as Article 48: 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 the investor cannot incur liability beyond their initial investment. The exemption does not extend to listed securities or to instruments where the investor can incur additional liability.

The Reasonable Belief Requirement

The communicator must believe on reasonable grounds that the recipient is a self-certified sophisticated investor. A signed statement in the prescribed form will ordinarily provide the basis for that belief. However, as with Article 48, the requirement is not purely mechanical. If you have reason to believe a statement is inaccurate, or if statements have been obtained without genuine engagement with whether investors actually meet one of the qualifying criteria, the protection provided is materially weaker.

Asking all investors on a list to sign a statement without any consideration of whether they qualify, or providing coaching to investors about which criterion to select, does not constitute a genuine reasonable belief process. The FCA will look at the substance of how statements were obtained, not merely whether they were collected. A pre-investment gateway process that walks each investor through the criteria individually provides the most defensible basis for reasonable belief.

Using Articles 48 and 50A Together

Articles 48 and 50A are complementary. Many investors will qualify under both. A founder who has been a director of a qualifying company and also has net assets above £250,000 can self-certify under either exemption. Where both apply, either certification provides a valid basis for the communication and it is not necessary to obtain both.

In practice the most efficient approach for most equity fundraising rounds is to present prospective investors with a combined onboarding document that sets out both the Article 48 HNW statement and the Article 50A self-certification statement clearly, explains the criteria for each, and invites the investor to complete whichever applies to their circumstances. This maximises the pool of investors who can be reached under the exemptions and ensures each investor is categorised on the basis most appropriate to their actual situation. The two statements must remain clearly distinct. A blended document that allows investors to sign without clearly identifying which exemption they are relying on and on what basis does not satisfy the conditions of either.