The Private Capital Series | Marshall Sterling Investment Management

Module 10.1 · Financial Promotions

If you are raising capital for your business, you will encounter the term financial promotion. You may have heard it in passing, seen it referenced in legal advice, or stumbled across it while researching how to approach investors. Whatever your route to this article, understanding what a financial promotion is, and is not, is one of the most important things you can do before you begin any fundraising activity.

Getting it wrong is not a minor administrative error. It is a criminal offence.

This article explains the legal definition, what it means in practice, and why it matters to founders and business owners seeking private investment.

The Legal Foundation

The financial promotion regime in the United Kingdom is governed primarily by section 21 of the Financial Services and Markets Act 2000, commonly referred to as FSMA.

Section 21 states that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless one of two conditions is met: either the communication is made or approved by an FCA-authorised person, or it falls within an exemption set out in secondary legislation.

That secondary legislation is the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, known as the FPO. The exemptions it contains are the primary tool available to businesses that are not FCA-authorised but need to communicate with potential investors. Those exemptions are covered in detail in later articles in this series.

For now, focus on the core restriction: if you are not FCA-authorised and your communication does not fall within an exemption, you cannot lawfully make it without having it approved by someone who is authorised.

Unpacking the Definition

The section 21 restriction sounds straightforward but its scope is broader than most founders expect. Three elements are worth examining closely.

In the course of business

The restriction applies to communications made in the course of business. A purely private communication between friends or family members, entirely outside any business context, is unlikely to engage the regime. In practice, however, almost any communication made in the context of raising capital for a business will be considered to be in the course of a business, even if the business itself is pre-revenue or at an early stage. The FCA and the courts have interpreted this element broadly.

Invitation or inducement

This is where many founders are surprised. The restriction does not only capture formal investment offers or prospectuses. It captures any communication that invites or induces someone to engage in investment activity. A pitch deck shared with a prospective angel investor is almost certainly a financial promotion. An email introducing your business and asking whether someone might be interested in investing is very likely a financial promotion. A LinkedIn message describing your funding round and linking to further information may well be a financial promotion.

Engage in investment activity

Investment activity is defined to include acquiring, disposing of, holding or managing investments, and entering into agreements relating to investments. Shares in a company, loan notes, convertible instruments and similar securities all fall within the definition of investments for these purposes. If your capital raise involves any of these instruments, communications relating to it are capable of being financial promotions.

Why the Scope Is Wider Than You Think

A common misconception is that the financial promotion regime only applies to formal documents. It does not. The FCA has made clear that the regime applies to all forms of communication: written and oral, formal and informal, digital and physical.

This means the following can all constitute financial promotions depending on their content and context:

• A pitch deck shared with a prospective angel investor
• A business plan for investors emailed to a family office
• A post on a founder community platform describing your funding round and inviting interest
• A presentation at an investor event
• A page on your website describing investment opportunities
• A conversation at a networking event, if it amounts to an inducement

The medium is irrelevant. What matters is the content and the context.

The Real World Risk

Communicating an unlawful financial promotion is a criminal offence under section 25 of FSMA. The maximum sentence on indictment is two years imprisonment, an unlimited fine, or both. Any agreement entered into as a result of an unlawful financial promotion may also be unenforceable, which means investors could potentially seek to unwind their investment and recover their money. For a business that has already deployed that capital, the consequences can be existential.

Beyond criminal liability, the FCA has broad powers to take regulatory action, issue public censure, and require businesses to take remedial steps including issuing corrective communications to people who received unlawful promotions.

It is worth being clear: the FCA does take action against unauthorised businesses that breach the financial promotion restriction. It is not an area where the regulator turns a blind eye to small businesses on the basis that they did not know better.

What This Means in Practice

Understanding the definition is step one. The practical question for most founders is not whether a communication is a financial promotion, because in most cases it will be. The practical question is whether a relevant exemption applies that allows you to make it lawfully without FCA authorisation or approval.

The FPO contains a range of exemptions designed to allow legitimate startup fundraising and SME fundraising to proceed without requiring every communication to be routed through an FCA authorised firm. Those exemptions include provisions for high net worth individuals, sophisticated investors, one-off communications, and various categories of professional and institutional investor.

Each exemption has specific conditions that must be met. None of them are as simple as they first appear, and several have been subject to regulatory change in recent years. The high net worth and sophisticated investor exemptions under Articles 48 and 50A are a notable example: threshold changes introduced in January 2024 were reversed within two months by SI 2024/301, reinstating the original criteria. The detail of those exemptions and the current position is addressed in articles 10.5 and 10.8.

The subsequent articles in this module work through each of the principal exemptions in detail, including what the conditions require, how they work in practice, and where founders most commonly go wrong. Marshall Sterling Investment Management has prepared this series specifically to give founders and SME owners a clear and accurate foundation before beginning their raise.

A Note on Approval

If no exemption applies to your proposed communication, the alternative to FCA authorisation is having the communication approved by an FCA-authorised person. Since January 2024, authorised firms that approve financial promotions for unauthorised businesses are required to have specific FCA permission to do so. This means the pool of firms willing and able to approve fundraising documents and investor communications has narrowed, the process takes longer, and the cost has increased. If you are considering this route, early engagement with a suitable authorised firm is essential.