Who can I promote my property deals to?

compliance fundraising Jun 27, 2021

 

There is a lot of talk in the property industry about using other people's money for your property deals. Yet, little is said about the Financial Conduct Authority (FCA) rules around asking for other people's money. 

 

What does the FCA say about asking for other people's money for your property deals?

The FCA states that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless the promotion has been made or approved by an authorised person or the communication is exempt. (PERG 8.3 Financial promotion)

 

What does this mean in plain English?

This means that asking for money for your property deals is treated as a financial promotion by the FCA, which means you cannot go around asking just anyone for money UNLESS the investor you are speaking to is one of the following:

  1. High Net Worth Investor (HNWI)
  2. Sophisticated Investor (SI)

 

How can you know if an investor is a HNWI or SI?

Easy. What you need to do is ask a potential investor to certify themselves as either a HNWI or self-certify as a sophisticated investor SI by signing and dating the relevant statement before you talk to them about a live deal. You can find the high net worth investor statement here and the self-certified sophisticated investor statement here.

In sum, to be a HNWI, they will need to confirm that they have:

  • have a net income in excess of £100,000 per annum in the previous financial year or
  • have net assets in excess of £250,000 beyond their pension fund assets and their private residence

To be a SI, they will need to confirm that they meet at least one of the following:

  • 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.

This is an annual requirement and it is your responsibility to ensure that you obtain a copy of the relevant statement annually.

Please note that there may be further requirements (e.g. a preliminary assessment of suitability) that may need to be carried out depending on the type of investment you are planning to offer.

Property is a high-risk investment and should be treated as such. The FCA is seeking to prevent harm to investors from investing in complex, high-risk products that they do not understand and are not suitable for them. In November 2019, we saw the FCA taking steps to regulate some of the creative financial products within the property industry by introducing a temporary ban on the promotion of high risk speculative mini-bonds to most retail investors. This ban was eventually made permanent in December 2020 in Policy Statement 20/15.

In April 2021, the FCA published a Discussion Paper 21/1 to get views on changes they can make to strengthen their financial promotion rules for high-risk investments. They are currently reviewing the feedback that had been submitted and we are keeping our eyes peeled to see what they will say.

 

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