7.3.3 Financial promotions
Section 21 of FSMA sets out restrictions on how financial promotions can be made. Essentially, the contents of any form of communication encouraging the public to make an investment must be approved by an FCA authorised person. This applies to all financial services activities except those that are not regulated activities.
FSMA (Financial Promotion) Order 2005 Article 35 makes it clear that the financial promotion restrictions do not apply to any communication by a co-operative or community benefit society relating to any form of debt instrument, such as debentures, loan stock and bonds, including transferable debt instruments, where communications are restricted to non-real time or solicited real time communications. But these restrictions do apply to transferable shares in a society, and any form of deposit taking, both of which are controlled investments (see Schedule 1 paragraphs 14 and 15). Non-transferable, withdrawable shares are outside the definition of a controlled investment for the purpose of the financial promotion rules, so the restrictions do not apply to this type of share capital.
In any case, FSMA (Financial Promotion) Order 2005 Article 62 states that the financial promotion restrictions do not apply to the sale of the body corporate. It defines this as the sale of 50% or more of the voting shares in a corporate body, and given that under most circumstances a community share offer will result in a more than 50% increase in the number of voting members of a society, then the financial promotion restrictions do not apply.
The Financial Promotion Order also exempts communications with a wide range of people such as certified high net worth individuals, self-certified sophisticated investors, and the “common interest group” of a company. These exemptions may be significant for social enterprises making financial promotions that are not co-operatives or community benefit societies. Communications made by third parties, including “mere conduits”, communications by journalists, and generic communications are also exempt. A mere conduit is someone who communicates materials wholly devised and provided by others.
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