Promotions

Using Documents Approved by an Authorised Person

The Financial Services and Markets Act 2000 makes it an offence to market an unregulated collective investment scheme to the public. Under FSA guidance, 'marketing' is given a very broad construction and it can mean any communication which might lead directly or indirectly to an investment.  When looking at the meaning of 'the public' the following types of investor are excluded:

• Investment Professionals; being:

  • Authorised persons

  • Exempt persons (not including Appointed Representatives but including professional firms)

  • Investors whose ordinary activity is investing in unregulated collective investment schemes

  • Governments, local authorities and international organisations

• High Net Worth Companies and Unincorporated Associations

• Sophisticated Investors with a certificate signed by an authorised firm (other than the scheme’s operator); and

• Members of associations predominantly made up of exempt investors.

If the scheme invests wholly or predominantly in unlisted companies, authorised firms can promote it to High Net Worth Individuals and Sophisticated Investors who have self-certified. However, there is no such exception for unauthorised firms or for schemes that invest in other asset classes, such as real estate. Where the investor is certified, the promoter must ensure that the certificate is current and relevant before promoting the scheme to them.  For Investment Professionals and High Net Worth Companies, the promotion can be made as long as it 'may reasonably be regarded as being directed' only at such investors and there are procedures in place to ensure that recipients not falling into these categories are prevented from investing.

There is an additional set of rules which have been created by the FSA allowing a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

individuals for whom the scheme is assessed as “suitable” (usually by a financial adviser); and

individuals for whom an assessment of experience, expertise and knowledge is undertaken (usually by a financial adviser or the scheme's operator) and the scheme deemed “appropriate”.

In these cases, the scheme can be promoted to a potential investor on the basis that they will not be allowed to invest unless they successfully complete the assessment (which may occur after the promotion has been made). In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person. In practice, this means that an unauthorised firm using an approved document can promote a scheme beyond certified investors, as long as the operator of the scheme (or another authorised firm, such as an IFA) will make assessments of potential investors and filter out any inappropriate applications).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading.  Summary documents can be used, but these also have to meet the rules and must be consistent with all of the other information given to investors.

Using Unapproved Documents
There are limited circumstances in which an unauthorised firm can use unapproved documents to promote an unregulated collective investment scheme.  This may be appropriate when making promotions to Investment Professionals and High Net Worth Companies, but the scheme must have procedures in place which prevent other investors from making an investment.  The rules for unapproved promotions to individuals are more complex and depend on evidence of the investor's prior certification, the assets of the scheme and the warnings within the document.

Making Presentations, Holding Meetings, & Making Calls
Face-to-face meetings, presentations and telephone calls (known as “real-time” communications) can be used to provide information, once there has been an appropriate initial written approach to the investor. This may be before sending full scheme documents as long as the investor cannot actually invest without receiving them.

Initial approaches can sometimes be made in real time, but only by authorised firms, or to Investment Professionals and High Net Worth Companies.  Careful steps are required to be taken to ensure that these approaches remain within the rules.