As a result of Brexit, the UK's financial regulatory system had to move away from the established Europe-wide regulatory framework known as the Financial Services and Markets Act 2000.  Upon Royal Assent received in July 2023, the UK adopted the Financial Services and Markets Act 2023 (also referred to as the Edinburgh Reforms).  This new piece of legislation repeals and replaces the prior EU laws.  There are a number of material changes made that both investors and investment managers need to be aware of. 

One of the more impactful changes relates to who qualifies to invest as a high net worth individual. This is important because certain investment opportunities are restricted to certain types of investors.

 

From the 31st of January 2024 new financial promotion rules will come into effect, which update qualifying criteria for High Net Worth Individuals (HNWI) and self certified sophisticated investor exemptions.

 

For HNWI:

1) The annual income threshold for categorising an investor as a "High Net Worth" investor will increase from £100 thousand to £170 thousand.

2) The net asset threshold for a High Net Worth Investor will increase from £250 thousand to £430 thousand.

 

For Self Certified Sophisticated Investors:

3) Sophisticated investors cannot meet the criterion based on prior investment as an indicator of sophistication.

4) A Company Director may still meet the Sophisticated Investor criteria, however the company they manage must now have turnover of over £1.6 million (compared to £1million previously).

This is one significant piece of legislation.  The late Sir Win Bischoff, one of the City's grandees (and a fellow NYU alumni) commented on the Reforms describing them “[...] more of an adjustment, a redress of sorts [...] The Edinburgh Reforms will however be useful in arresting the relative and measurable decline of the City over the past five years.” 

The legislation is extensive and as such there are more changes that were made to the regulatory framework which I have not discussed in this article.  Have a look at the parliamentary bill itself by clicking here.  The FCA has also published a good overview of the act in its Regulatory Initiatives publication as well as interesting articles on specific parts of the act such as Financial Services & Markets Act 2023 gives FCA new powers to protect access to cash.

 

Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 565716). This article is a financial promotion and is intended for UK investors only. The content is for information purposes only and does not constitute investment advice or a recommendation to invest. SEIS and EIS tax reliefs depend on individual circumstances and may change. The value of investments may go down as well as up, and investors may not get back the full amount invested. Past performance is not a reliable indicator of future performance.  Investment outcomes can differ substantially, potentially resulting in the loss of all your capital invested. Shares in early-stage companies are illiquid: you may be unable to sell your holding for several years, if at all. Investors should not rely on this article as a basis for investment decisions and must consider the illiquid and high-risk nature of early-stage investing. No warranty as to future outcome is implied nor should one be inferred. Tax treatment depends on individual circumstances and may be subject to change. Investments of this type are generally not covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service if the underlying companies fail.