Do investment introducers need FCA authorisation?

What arranging deals in investments covers

Article 25 of the Regulated Activities Order has two limbs. The first covers making arrangements for another person to buy, sell, subscribe for or underwrite a particular investment. The second is wider and covers making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting investments. Between them they can catch a great deal of ordinary deal-making activity: identifying investors, setting up meetings, passing on information memoranda, collecting expressions of interest and handling subscription documents.

The activity only applies to specified investments. These include shares, bonds and loan notes, units in collective investment schemes, options, futures and contracts for differences, among others. Loan notes issued by a private company are a common example that people do not expect to be caught. Property itself is not a specified investment, but an interest in a property scheme can be, which is covered on our property and investment schemes page.

The article 33 introducing exclusion

Article 33 excludes some introductions from article 25. It applies where the introduction is made to an authorised person, an exempt person or certain other persons lawfully carrying on investment business, and it is made with a view to that person providing independent advice or exercising independent discretion in relation to investments generally or a class of investments. There are further conditions, and the exclusion only applies to the second, wider limb of article 25. It does not cover arrangements for a particular transaction under the first limb.

That fits a narrow pattern: an accountant or solicitor who refers a client to a wealth manager or a financial adviser so that the client can be advised on their investments generally. It does not usually fit an introducer whose purpose is to bring investors to a specific company, fund or property deal. In that situation the person introduced to is often the issuer or the deal sponsor, who may not be authorised at all, and the introduction is made with a view to one investment rather than to independent advice. Other exclusions exist, but each has its own conditions and none is a general carve-out for introducers.

Introducing investors to a specific deal

Most investment introducer questions arise in this context. A business raising money asks a contact with a network to bring in investors, and offers a fee for doing so. The introducer may see itself as doing a favour or making a connection. The law looks at what the introducer does and why. If the introducer is bringing investors to a particular deal and is involved in getting them to subscribe, article 25 is likely to be engaged.

The closer the introducer gets to the investment decision, the more activities can come into play. Recommending a particular investment to someone as an investor can be advising on investments under article 53, which is a separate regulated activity. An introducer who only passes the investor’s name to an authorised firm that then deals with them independently is in a different position from one who presents the deal, answers questions about it and chases the paperwork.

Finders’ fees

A finder’s fee calculated as a percentage of money raised is common in private fundraising. It is not in itself what makes an activity regulated, but it shows that introductions are being made by way of business and with a view to particular transactions, which makes the exclusions harder to rely on. It also matters to the business paying the fee. Under section 27 of FSMA, an agreement made by an authorised firm in consequence of something done by a third party in breach of the general prohibition can be unenforceable against the other party, subject to the court’s discretion under section 28. Unauthorised introducers can therefore create risk for the deals they work on, as well as for themselves.

Promoting investments is restricted

The marketing test applies separately. Under section 21 of FSMA, a communication made in the course of business that invites or induces someone to invest is a financial promotion. An introducer’s emails, pitch decks, WhatsApp messages and calls about a specific opportunity are likely to be promotions, and so are the issuer’s own investor materials. Unless an authorised firm makes or approves the promotion, it needs an exemption in the Financial Promotion Order. The exemptions for high net worth individuals, sophisticated investors and investment professionals are commonly used, but each has detailed conditions about who can receive the promotion and what it must say. Fundraising and investor materials and promotion exemptions

Common misunderstandings

When a written opinion helps

A written legal opinion is worth considering before you sign an introducer or finder’s agreement, when a business raising money asks you to bring in investors, when an authorised firm you work with asks how you are able to do what you do, or when you are a company raising funds and want to know whether the introducers you pay create risk for the round. The opinion applies articles 25 and 33 and the promotion rules to your actual role and documents. How written opinions work