From 1st January 2021, a set of temporary rules the Financial Conduct Authority (FCA) introduced in 2020 became permanent. These new rules restrict the promotion of certain types of investment to what the FCA calls Sophisticated investors.
The 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. The FCA defines these as ‘speculative illiquid securities’ (SIS) and categorises this type of investment to be more complex and higher risk.
The rules restrict the promotion of these investments to investors who certify themselves as Sophisticated. This means that investors who do not consider themselves, or qualify as sophisticated will not be able to view the offer to invest in these investments, including the summary details or terms of the investments.
How does this apply to Abundance?
The majority of the investments on Abundance are not impacted by the rule changes as the companies or councils raising the money are not using the funds raised for the purposes set out above. These investments are therefore available to both Restricted and Self-Certified Sophisticated investors (the two categories you can choose on Abundance).
However, some investments on Abundance meet the definition under the new rules and in these cases the investments will only be promoted to Self-Certified Sophisticated investors. This typically applies to some of the green social housing investments we offer on Abundance, as the company is raising money to construct a property that is not for its own use.
How does this apply to me?
If you are a Restricted investor you can continue to invest on Abundance. While there may be a small number of investments that we will not promote to you, we expect the 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.
If you are a Self-Certified Sophisticated investor on Abundance we will promote all new investment opportunities to you, including those that fall under the speculative illiquid security definition.
You can review or revise your investor category at any time from within your Profile if your circumstances change. We will also ask you to review your investor category every 6-months.
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 Sophisticated Investor is defined as someone who has more experience making the same types of investment as we offer on Abundance. These are investments in unlisted companies (such as debentures, bonds or shares) or peer-to-peer investments, that can’t be bought or sold on a stock exchange. They include investments the FCA call non-readily realisable securities and speculative illiquid securities.
A Self-Certified Sophisticated investor for the purpose of investing in ‘speculative illiquid securities’ is an individual who has confirmed within the last twelve months the statement for a Sophisticated investor. All the investments on Abundance are from unlisted companies and so they fall under the definition within the Self-Certified Sophisticated investor statement.
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.”