What is a financial promotion?
A financial promotion is a communication, made in the course of business, that invites or induces a person to engage in investment activity. Section 21(1) of the Financial Services and Markets Act 2000 (FSMA) states the restriction: a person “must not, in the course of business, communicate an invitation or inducement to engage in investment activity” unless an exception applies. For a UK bond issuer, a term sheet, an offering circular, a roadshow deck, and an email to a prospective holder can all be communications within that wording.
The rule is about who receives the communication, not about whether the bond is good or bad. A perfectly accurate document sent to the wrong audience can still breach it.
Who may make the communication
Section 21(2) removes the restriction in two cases. The first is where the person making the communication is an authorised person, meaning a firm authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority. The second is where the content has been approved for the purposes of section 21 by an authorised person. An unauthorised issuer therefore relies either on an arranger or other authorised firm to make or approve the communication, or on an exemption. Amendments made in 2023 limit the circumstances in which an authorised person may approve content, so approval is not a formality.
What a breach costs
Contravening section 21(1) is a criminal offence under section 25 of FSMA. On summary conviction the maximum is six months’ imprisonment, a fine not exceeding the statutory maximum, or both. On conviction on indictment it is two years’ imprisonment, a fine, or both. Section 25(2) gives two defences: the accused believed on reasonable grounds that the content was prepared or approved by an authorised person, or took all reasonable precautions and exercised all due diligence to avoid committing the offence.
Both defences depend on records. An issuer that cannot show who it sent a document to, and why it believed that person was eligible, will find the defences hard to use.
The exemptions issuers actually use
The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) contains the exemptions. Two matter most for wholesale bond marketing.
Article 19 covers communications made only to investment professionals, or which may reasonably be regarded as directed only at them. The definition includes authorised persons, governments, local authorities, and international organisations, and any other person whose ordinary activities involve carrying on the relevant controlled activity for a business. The Order also lists three markers of a communication directed only at professionals: a statement that it is aimed at people with professional investment experience, a warning that others should not rely on it, and proper systems to stop non-professionals from engaging in the investment activity.
Article 49 covers high net worth companies, unincorporated associations, partnerships, and trusts. A body corporate qualifies if it has, or is in the same group as an undertaking with, called-up share capital or net assets of at least £500,000 where it has more than 20 members, and at least £5 million otherwise. An unincorporated association or partnership needs net assets of at least £5 million. The trustee of a high value trust qualifies where cash and investments total £10 million or more.
The Order also contains individual-focused exemptions for high net worth and sophisticated individuals. Their thresholds have been revised in recent years, so the current Order should be read before any reliance on them.
How this differs from the prospectus rules
Financial promotion and prospectus law ask different questions. The Public Offers and Admissions to Trading Regulations 2024 deal with whether securities may be offered to the public and which disclosure document is needed, as set out in prospectus or admission document. Section 21 deals with who may be sent a promotional communication at all. A bond with a £50,000 denomination may clear the offer question and still need a clean answer on the communication question, because the two regimes run side by side.
The same separation applies to the offering document itself. A well-built circular, as described in how to prepare a strong offering circular, carries restriction legends, but the legend does not replace controls on who actually receives the file.
Practical controls
Issuers that market to institutions usually adopt four habits. They route communications through an authorised arranger. They put the Article 19 markers on the first page of every document. They keep a log of recipients with the reason each was believed to be eligible. And they restrict access to the offering document online, instead of leaving it on an open web page. After admission, the continuing disclosure duties covered in the UK bond issuance process add a second set of communication controls.
Where The Bond Service fits
The Bond Service works with issuers on identifiers, clearing-system eligibility, and the timetable around an issue, and it points them to authorised advisers for communications questions. Its page on investment bond prospectus drafting sets out how disclosure documents fit into that timetable.
This article explains how the rules work in outline. It is not legal advice, and it does not recommend any bond or invite investment.
