What is a security trustee?

A security trustee is a service that can be offered by an FCA Authorised firm, although the activity is not regulated by the FCA. Many debt investments, especially mini bond and loan note issues have a need for a firm to act as a security trustee. A security trustee is an independent entity that sits between the bond holders, (the investors) and the bond issuer, (the borrower). The security trustee’s primary responsibility is that of acting impartially, but representing the interests of the bond holders, especially if a bond issuer fails to meet an interest (coupon) payment.

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What is a Financial Promotion – Section 21?

Blue Water Capital is a specialist in FSMA 2000 Section 21 Financial Promotions. If you would like further information, please get in touch: 0121 725 1951 or freddie@bluewatercapital.co

What is a financial promotion FSMA Section 21?

What is a financial promotion FSMA Section 21? Financial promotions are more common than people might think. Any marketing material that is used to either invite or induce an individual to engage in investment activity constitutes a financial promotion.

There are very stringent rules that surround financial promotions, centred mainly around ensuring investor protection. Section 21 of the Financial Services and Markets Act 2000, governs the rules that financial promotions must be produced in line with. It’s a complex piece of legislation and ensures that when an investor is presented with an investment opportunity, the content is fair, clear and not misleading and the investor is able to make unbiased decision as to whether to invest.

A Section 21 approval allows for a business, FCA regulated or not, to engage prospective investors with an investment opportunity. Nearly all businesses at some point need to raise capital. The activity of engaging an investor with an investment offer (debt or equity) is an FCA regulated activity and so all businesses will be required to adhere to the FCA and its requirements.

Let’s look at a very basic example that should help to put financial promotions into context:

A flower shop owner in Birmingham wants to expand the business to London. However, the business owner does not have sufficient capital to purchase the real estate in London. The businessman decides that the best course of action is to issue a bond (borrow money with the promise of paying it back with interest to investors).

The business owner (known as an issuer) approaches Blue Water Capital (an FCA regulated firm) to structure and approve the investment offer (information memorandum) with a FSMA 2000 section 21 sign off.

Blue Water Capital works with the issuer to structure the offer and ultimately approves the financial promotion. This allows the issuer to compliantly engage investors with investment offer.

There are a few important areas to be cognisant of in this example:

  • Selling flowers is not an FCA regulated activity, however, issuing a bond investment is.
  • Blue Water Capital, a firm that is regulated by the FCA must approve the offer to ensure that the offer meets the FCA’s requirements.
  • Without this approval, the flower shop owner cannot issue the bond.
  • The issuer approaching investors with an investment offer constitutes a financial promotion.

As briefly mentioned, the FCA has laid down all the rules that financial promotions must adhere to in Section 21 of FSMA 2000. Authorised firms such as Blue Water Capital that approve financial promotions must ensure that the offer is fair, clear and not misleading, all statements are substantiated and that risk warnings are prevalent, amongst many more requirements.

It’s worth noting that the FCA is media neutral.

Therefore, regardless of the medium used, digital or traditional (a letter, email or Facebook etc.), to promote the investment, the issuer must remain Section 21 compliant. There are different rules that govern real-time and non-real time promotions. Real-time promotions and dynamic conversations such as a phone call or meeting and non-real time are non-dynamic interactions such as an email or letter. Both require compliance.

Why are financial promotions important?

If financial promotions are not compliant then the FCA reserves the right to ban the promotions. Furthermore, failing to adhere to the rules could constitute a criminal and/or civil offence punishable with up to 2 years in prison and unlimited fine.

Financial promotions are a complex and often misunderstood area. However, almost certainly all businesses at some point will be required to adhere to the stringent rules laid down in FSMA 2000 Section 21 and remain compliant. It’s crucial for all businesses to be cognisant of this area. Unfortunately, many businesses fail to adhere to the regulatory requirements and too often pay the price for doing so.

If you would like further information around this subject please don’t hesitate to get in touch, or alternatively, see this article for a thorough breakdown.

If you would like to know how Blue Water Capital & Compliance can help you, please contact us at: freddie@bluewatercapital.co or call  +44 (0)121 725 1951

Please note this article does not constitute legal advice and should not be used as the basis for any business decision.

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What is Financial Promotion?

Whether you are seeking to raise finance for your Company through investment by third parties including friends and family, professional investors and/or alternative sources such as crowdfunding it is likely you will be required to obtain a Section 21 sign off. Read more