Our products, our permitted activities and our clients
2.1 What are 'Investments'?
FSMA ("Financial Services and Markets Act") Section 22 defines an investment as including 'any asset, right or interest.'
What this means in the context of our platforms is laid out in the table below.
|Relevant investments||Not classified as an investment|
Note that in the context of our business, any of the above could be held as an asset of an SPV, and the shares of the SPV can be made available for purchase on a platform. In such a scenario, the underlying asset would not be an investment, but the shares in the SPV would be.
2.2. What are we permitted to do?
We are authorised and regulated by the FCA, and ShareIn's FCA registration number is 603332.
Of the FCA regulated activities comprising "investment business", ShareIn is permitted to carry on the following, in the context of crowdfunding activities only:
Arranging (bringing about) deals in investments
Arranging safeguarding and administration of assets.
Making arrangements with a view to transactions in investments.
Agreeing to carry on a regulated activity.
ShareIn is not permitted to give investment advice, or to hold client money.
Note that given the significant risks investors face when investing in unlisted securities that are difficult to value or sell on a secondary market, the FCA have indicated that such investments can only be promoted to certain types of investor. This is developed further under the section Who Are Our Clients? below.
A special note about investment advice
The term 'advice' has more than one meaning to the regulator, and has several different sub-categories (examples being 'focused' and 'limited' advice). Under MiFID, "investment advice" is the provision by an investment firm of a personal recommendation to a client, either at the client's request or at the firm's initiative, in respect of one or more transactions relating to financial instruments. From the standpoint of our investors, the term can reasonably be considered to have its everyday meaning.
Recent court decisions show that, in relation to advice, we have to be aware of the facts of an individual case as well as the underlying regulatory rules and guidance. In other words, the circumstances surrounding the case are important, and courts may bypass the MiFID definition in favour of its everyday meaning.
ShareIn do not have permission to provide investment advice. You must be cautious, therefore, about conducting sales or marketing activities in a way that could give investors the impression you are providing a recommendation or advice.
2.3. Who are our clients?
A client is any person with or for whom we conduct or intend to conduct designated investment business. The definition therefore includes those persons who are potential clients, including those to whom we direct financial promotions. In this manual we may sometimes use the terms "investor" or "customer" when we are referring to "clients" in the regulatory sense.
The FCA divides customers into three distinct categories: retail client, professional client or eligible counterparty.
ShareIn have elected to classify all our clients as retail clients, which affords the highest level of investor protection.
Owing to the nature of the investments available on our platforms, the FCA have defined only a limited subsection of retail clients who are eligible to invest in non-readily realisable securities such as those available on investment crowdfunding platforms. These comprise
Self-Certified Sophisticated investors
High Net Worth Individuals
These three categories are described further below.
2.3.1. Professional Clients and Eligible Counterparties
Although ShareIn believe professional clients and eligible counterparties are unlikely at this time to make investments on our platforms, it is important to understand what these terms mean, since "retail client" is defined in opposition to them.
A professional client may be an entity which is authorised and regulated to operate in the financial markets in compliance with MiFID, though could also be someone who, owing to expertise, experience and knowledge, gives reasonable assurance that it is capable of making its own investment decisions and of understanding the risks involved.
An eligible counterparty client will typically be a national government or its corresponding office, including a public body that deals with the public debt, a central bank or a supranational organisation.
2.3.2. Retail Client
A retail client is a person who is not a professional client or an eligible counterparty. Retail clients are entitled to much greater protection than professional clients or eligible counterparties in relation to financial promotions, communication of risk, disclosure and cancellation rights.
ShareIn have taken the decision that all our clients will by default be classed as retail clients.
2.3.3. Client Categorisation in Crowdfunding
ShareIn and its Appointed Representatives do not provide services, such as investment advice, that require an ongoing judgement of suitability for our investors.
However, we are required to ensure that potential investors are within the correct definition of client category under the FCA's equity crowdfunding rules. Due to the high-risk nature of our products, we may only promote to certain categories of investor. These are:
|Restricted investors||Retail clients who do not fall into the one of more of the other categories, and who must confirm before investing that they have only invested up to 10% of their investable assets into these types of products.|
|Self-certified sophisticated investors|
Individuals who certify that within the past twelve months at least one of the following applies:
|High net worth individuals|
Individuals who certify that within the past 12 months at least one of the following applies:
The Appendices lay out specific definitions for investors that are Individuals, Entities or Trusts. Please speak to Compliance if you have questions about whether an individual or entity would be eligible to invest in a product available through your platform.
2.3.4. Policies, Procedures and Records
Because crowdfunding investment platforms are open only to a subset of retail clients, we must have a procedure for ensuring that only appropriate persons are able to invest.
The ShareIn technology includes an appropriateness test as a mandatory standard feature on all platforms, as well as a self-classification tool, requiring each client to classify themselves as Restricted, Self-Certified Sophisticated, or High Net Worth. Changes in client classification as well as answers provided to the appropriateness test - including a record of any failed tests - are maintained on the client record.
2.4 What information about the firm must we disclose to investors?
2.4.1. Client agreements
Where we carry on designated investment business for a retail client, we must enter into a client agreement before the provision of these services. The agreement must be in a durable medium. It must set out the essential rights and obligations of both the firm and client. The content of the agreement must include information about us and our services. It must also ensure that the disclosure requirements in FCA COBS 6, including information on communications, conflicts of interest and authorised status, are detailed. The agreement should be constructed in terms which are fair, clear and not misleading.
Where a material change to the information provided occurs, the client should be notified as soon as possible. Such a notification should also be provided in a durable medium.
A record of the client agreement must be held for the duration of the relationship with the client and, where appropriate, for five years from the date when we cease to provide services for the client.
ShareIn and its Appointed Representatives meet this requirement by establishing Investor Terms and Conditions via the investment platform. Registered users must accept these Terms before they can invest. Each platform has its own Terms and Conditions, which are specific to the business and the type of investment(s) offered.
2.4.2. Information about the firm
Before providing investment related services to a retail client, we should disclose to them in a durable medium information about:
The firm and its services.
Designated investments and proposed investment strategies, including guidance and warnings of the risks associated with investing in those designated investments or in respect of particular investment strategies.
Total costs and associated charges, including all related fees, commissions, charges and expenses and the arrangements for payment.
This should ensure that the investor is reasonably able to understand the nature and risks of the service and of the specific type of investment that is being offered. As a result, the client should be able to take investment decisions on an informed basis. This information will typically be given through the medium of written communication, including email and the platform messaging system, and should also contain the following general information:
Our name and address and the contact details necessary to enable a client to communicate effectively with us.
The languages in which the client may communicate with us and receive documents and other information from us.
The methods of communication to be used between ourselves and the client including, where relevant, those for the sending and reception of orders.
A statement of the fact that the firm is authorised and regulated by the Financial Conduct Authority (FCA) as well as the contact address of the FCA.
If the firm is acting through an appointed representative or, where appropriate, a tied agent, a statement of this fact specifying the EEA state in which that appointed representative or tied agent is registered.
The nature, frequency and timing of the reports on the performance of the service to be provided by us to the client.
A description of the conflicts of interest policy we operate.
Should any material change occur to the information provided to the investor, we must notify him/her in good time and in a durable medium.
It should always be borne in mind that all forms of communication to investors should be clear, fair and not misleading.