The UK's approach to investments generally is a regulated one. Various authorisations may be required depending on what type of investment (referred to generically in this article as "financial promotions") is proposed and who the investment is directed at. There can be serious consequences of offering, recommending or arranging investments without the relevant authorisations. The Financial Services Authority authorises certain regulated firms to undertake investment work and it is primarily these firms that will take responsibility for arranging investments on behalf of their clients.
Fortunately, the UK's regime also provides a framework for investments which do not fall within the regulated sphere. This provides companies with a number of "safe harbours" and provided the investment is within one (or more) of these, there should be no adverse consequences and no requirement to get an authorised firm involved (which will undoubtedly save time and expense). If an investment falls outside of the various safe harbours and the communication of the investment has not been approved by an authorised firm in advance, the sanctions can be serious, and can include a fine and even imprisonment for directors in some cases.
The primary prohibition prevents a person, unless he is an "authorised person" or is exempt, from communicating an invitation or inducement to engage in investment activity in the course of business. "Investment activity" is widely defined but might include offering shares, stocks, debentures or other types of investment to members of the public generally or arranging such investments on behalf of another person.
The exemptions available can be very useful and may often apply in practice. It is not possible to summarise all available exemptions concisely, however, if you are in any doubt as to whether your proposed course of action might involve a controlled investment activity for which authorisation is required, you should take advice on your position as early as possible to ensure compliance with the legislation. Note particularly that financial promotions may be made verbally as well as in writing.
We have experience of advising on financial promotion issues such as these and working with FSA-authorised firms in relation to investments. If an individual or a company is considering making a financial promotion, it is crucial to obtain legal advice before communicating the investment opportunities to avoid serious legal consequences.
For further information in relation to this article, please contact Daniel McCormack.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.
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