Why have the temporary rules been introduced?
From 1st January 2020, the Financial Conduct Authority (FCA) introduced a set of temporary rules which restrict the promotion of certain types of investment to Sophisticated investors.
These restrictions have been introduced in response to the much-publicised events at London Capital and Finance (LCF) where a significant amount of money was raised from members of the general public with very poor governance and looks set to cause significant losses for those concerned. We reported our concerns about the way LCF was marketing itself and were concerned that no action seemed to be taken.
Abundance has met directly with the FCA (in our role as founding member of the UKCFA) including the outgoing CEO Andrew Bailey, to discuss the need to crack down on these types of investments which don't meet the standards of investment based crowdfunding. We have communicated our support for ensuring vulnerable or inexperienced investors are not exposed to inappropriate investments and misleading financial promotions. We continue to work with the FCA to ensure that the rules do not unintentionally restrict promotion of appropriate investments to crowdfunding investors.
The FCA is consulting this year on whether the temporary rules should be made permanent and if so, what clarifications or changes to incorporate into their current drafting. Ahead of those clarifications, we expect we may restrict the promotion of a small number of the investments on Abundance to those members who self-certify as Sophisticated investors.
What are the temporary rules?
The temporary rules apply specifically to unlisted debentures (like those offered through Abundance) or preference shares that are issued by a company that then uses the funds to lend to or invest in other companies or to develop and construct property that is not for its own use.
They restrict the promotion of these investments to investors who are self certified as Sophisticated. This means that investors who do not consider themselves or qualify as sophisticated (see definition below) cannot view the offer to invest in these projects.
How does this apply to Abundance?
The significant majority of the investments on Abundance are not impacted by the temporary rule changes and will therefore still be available to both Restricted and Self-Certified Sophisticated investors.
However, we expect that there will be a small number of investments that will be affected. In these cases the investments will only be promoted to Self-Certified Sophisticated investors.
How does this apply to me?
I’m a Restricted investor, can I still invest on Abundance?
Yes, Restricted investors can still invest on Abundance. While there may be a small number of investments that will not be promoted to you, we expect the vast majority of investments on Abundance will be promoted to Restricted investors and you will be able to view and invest in these as normal. You can also continue to use the marketplace to buy and sell existing investments from other Abundance users.
I’m already a Self-Certified Sophisticated investor on Abundance, are these investments restricted to me?
As part of the temporary restriction, the FCA have also introduced a new Self-Certified Sophisticated investor statement to specifically include ‘speculative illiquid securities’ alongside the statement you will have already made concerning ‘non-readily realisable securities’.
Before being able to view investments in ‘speculative illiquid securities’, you will need to review and confirm your Self-Certified Sophisticated status. You can do this by signing in and viewing your investor category within the Profile section of your account.
Does my investor certification affect any of my rights or protections?
There is no difference in your legal protections as a Self-Certified Sophisticated Investor compared to a Restricted Investor. It will not affect any of your rights under Abundance's Terms & Conditions, your right to complain to the Financial Ombudsman or any protections offered under the Financial Services Compensation Scheme.
What is a self-certified sophisticated investor?
A Self-Certified Sophisticated investor for the purpose of investing in ‘speculative illiquid securities’ is an individual who has signed, within the period of twelve months ending with the day on which the communication is made, a statement in the following terms below. All the investments on Abundance are from unlisted companies and so they fall under the definition within the Self-Certified Sophisticated investor statement:
“I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of speculative illiquid securities. I understand that this means:
- I can receive promotional communications made by a person who is authorised by the Financial Conduct Authority which relate to investment activity in speculative illiquid securities;
- the investments to which the promotions will relate may expose me to a significant risk of losing all of the property invested.
I am a self-certified sophisticated investor because at least one of the following applies:
- I am a member of a network or syndicate of business angels and have been so for at least the last six months prior to the date below;
- I have made more than one investment in an unlisted company in the two years prior to the date below;
- I am working, or have worked in the two years prior to the date below, in a professional capacity in the private equity sector, or in the provision of finance for small and medium enterprises;
- I am currently, or have been in the two years prior to the date below, a director of a company with an annual turnover of at least £1 million.
I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me to seek advice from someone who specialises in advising on speculative illiquid securities.”