Navigating financial promotion rules can be complex, especially for corporate finance teams managing communications around deals, restructurings, or fundraising.
This article explains key exclusions under the UK Financial Promotions Regime (FPR), helping you ensure compliance while communicating effectively with investors, creditors, and stakeholders. By understanding these exemptions, you can avoid regulatory pitfalls, reduce risk, and ensure your business operates within the Financial Conduct Authority (FCA) framework.
Whether you are preparing an investment proposal, managing a merger, or navigating debt restructurings, our corporate law and financial services specialists will work alongside your team to determine and apply the appropriate exclusions. We combine technical regulatory knowledge with practical commercial understanding to help you communicate effectively while maintaining compliance. This allows you to focus on executing your strategic priorities with confidence, supported by clear guidance on financial promotions requirements.
Contents:
What are financial promotions and why do exclusions matter?
A financial promotion is any communication that invites or encourages someone to engage in investment activity, such as buying shares, offering loans, or entering into financial contracts. Under UK law, financial promotions are strictly regulated by the FCA to protect investors from misleading or inappropriate offers.
However, certain exclusions allow businesses to promote financial activities without full compliance under the FPR. These exclusions are crucial for corporate finance teams working on deals such as mergers and acquisitions (M&As), restructurings, and equity or debt raises. By understanding these exemptions, you can communicate legally and efficiently with relevant stakeholders like investors, employees, and creditors.
For example, a private company raising funds might share investment opportunities directly with high-net-worth individuals or sophisticated investors without breaching FPR rules, provided their status is verified and suitable risk warnings are included.
Key exclusions under the financial promotions regime
Communications to specific investor groups
The FCA allows financial promotions to be made to specific types of investors who are considered capable of understanding the risks involved. These include investment professionals, high-net-worth individuals, sophisticated investors, and associations of such groups. Communications can also be shared with employees of the private company, close family or friends of employees, as well as existing shareholders and creditors.
For instance, imagine a scenario where a company needs to raise funds for a new growth initiative. If they approach a small group of high-net-worth individuals or sophisticated investors, they can share investment details without falling foul of the rules. To stay compliant, they must verify the investor’s status, document it, and include appropriate risk warnings to ensure the investors understand the associated risks.
One-off communications
One-off communications are exempt from full FPR compliance if they are highly tailored to a specific investor and not part of a broader marketing campaign. These communications can be real-time, such as calls and meetings, or non-real-time, like emails or letters.
For example, suppose a CFO schedules a one-off call with a high-net-worth individual to present a bespoke investment proposal. As long as the communication is personalised and not part of a repeated campaign, it falls under this exemption.
Sale of body corporate
The sale of body corporate exemption applies when the buyer acquires at least 50% of the voting shares or the entire business or assets of a company. This exclusion allows businesses to share financial data, valuation details, projections, and other due diligence materials relevant to the transaction.
For example, if a manufacturing company is being sold to a new owner, the financial promotion rules won’t restrict the seller from providing key details such as projections, valuations, and detailed financial history. However, if the sale involves less than 50% of the company, other exclusions (such as those for sophisticated investors) will need to apply instead.
Group companies’ communications
Communications within a group structure are exempt if they occur between parent and subsidiary companies, sister companies, or employees within the same corporate group. To qualify, there must be a genuine control relationship.
Take, for example, a parent company promoting investment opportunities or funding options to its subsidiaries. Because the communication is confined to the group, it qualifies for the intra-group exemption and avoids the need for FCA approval.
Member and creditor exclusions
- Communications with shareholders (members): Exempt communications to existing shareholders include rights issues, AGM/EGM notices, and dividend-related updates. These communications must relate strictly to current shareholder rights and should not invite new investments. A common pitfall occurs when businesses unintentionally invite shareholders to invest in new opportunities, thinking their communication is exempt. To stay compliant, focus strictly on matters related to their existing rights and shareholdings.
- Communications with creditors: Creditors’ exemptions apply to communications regarding debt restructuring, payment arrangements, refinancing, or security adjustments. To qualify, these communications must relate to existing debt and must be directed at current creditors only. For example, if a company negotiates a debt restructuring proposal with its existing lenders, it can send detailed updates and payment plans without triggering financial promotion restrictions.
Applying exclusions in practical scenarios
Mergers & Acquisitions
In M&A transactions, exclusions often depend on the structure of the deal:
- For complete company sales, the sale of body corporate exclusion allows you to share financial and due diligence materials with buyers acquiring more than 50% of the company.
- For partial share sales, exemptions for high-net-worth or sophisticated investors typically apply.
- In management buy-outs (MBOs), employee exemptions and one-off communications are commonly used for internal teams, while external financing requires professional or sophisticated investor exclusions.
For example, during an MBO, communications with the internal management team can leverage the employee exemption. If additional financing is required from external investors, the focus should shift to exclusions for sophisticated or professional investors, ensuring proper verification and documentation.
Joint ventures
In the formation of new joint ventures (JVs), group company exclusions are often applicable, particularly when partners are part of the same corporate structure. If external parties join the JV, exemptions for professional investors or high-net-worth individuals may apply.
For example, a new JV formed between two subsidiaries within a group would qualify under the intra-group exemption. However, if third-party investors are approached, additional exemptions will need to be carefully considered.
Corporate restructurings
Corporate restructurings often involve shareholder and creditor communications, group company exemptions, and other stakeholder interactions. Debt restructuring proposals, for example, typically qualify under the creditor exemption. Similarly, notices to shareholders about reorganisations can rely on member exemptions, provided the communication focuses on existing shareholder rights.
In complex restructurings, such as schemes of arrangement, careful consideration is needed to ensure all communications meet the relevant exemptions while being properly documented.
Best practices for ensuring compliance
To manage financial promotions effectively, businesses should implement structured internal policies, including a clear review and approval process. Compliance training is essential to ensure deal teams understand key FPR rules and exclusions. Regular audits, robust documentation, and clear communication protocols with third-party advisers are also critical.
For instance, businesses should maintain detailed records of all communications, including proof of investor eligibility (such as high-net-worth or sophisticated investor certifications). This ensures compliance and provides an audit trail if challenged by regulators.
Risks of non-compliance
Failure to comply with financial promotion rules can result in significant consequences, including regulatory penalties, legal action, and reputational damage. Businesses may face fines, suspension of FCA authorisation, or costly litigation if communications are found to breach FPR rules.
A notable example involved a UK-based fintech that issued promotional materials to unverified investors. The FCA imposed substantial fines, and the company faced reputational harm that impacted future fundraising efforts. Proactive compliance, including robust documentation and training, is essential to mitigate such risks.
Recent developments and future outlook
Recent changes to financial promotion regulations include the introduction of the Section 21 Gateway, which requires firms to demonstrate competence when approving promotions. Enhanced risk warnings and stricter marketing rules for high-risk investments have also been implemented. For firms dealing with crypto promotions, the FCA now mandates clear authorisation and approval processes.
Looking ahead, proposed reforms to UK listing rules, Environmental, Social and Governance (ESG) disclosure requirements, and capital markets regulations are expected to impact corporate finance activities. Staying informed about these developments and adapting internal policies is key to maintaining compliance.
Next steps
Understanding financial promotion exclusions is essential for ensuring compliance while delivering your corporate finance objectives. If you need support navigating these rules or tailoring communications to meet your needs, contact our corporate law solicitors. We’re here to help you innovate, grow, and stay compliant.
