HISTORIC PRESS RELEASE : Chancellor Gordon Brown Announces Proposals to Make it Easier for Business Angels to Invest in Small Companies [October 1999]

The press release issued by HM Treasury on 28 October 1999.

Small companies will find it easier to access capital from ‘business angels’ under new proposals announced by the Chancellor Gordon Brown today.

In the second consultation document on Financial Promotion, under the new Financial Services and Markets Bill, the Government proposes to lighten the touch of regulation where companies are attempting to gain access to funding from sophisticated and high net worth private individuals – so called ‘business angels’.

Announcing the proposals at the UK Internet Summit, the Chancellor said:

“The City of London is one of the largest and highly regarded financial centres in the world. It is vital that we develop a regulatory regime to enable its continued growth and to promote innovation and development in an increasingly technological age.

“This paper demonstrates our commitment to helping start up companies in the information technology and other rapidly growing business sectors gain access to capital.”

The consultation document proposes an exemption for certain promotions to allow capital raising, in the form of shares or debentures, for small companies to individuals with:

• a minimum annual gross income of between £75,000 and £100,000 or;
• or minimum net assets (excluding principal residence) of between £200,000 and £300,000.

The UK has looked at the regulatory regimes in the US and Australia where ‘business angels’ have played an important part in financing business start-ups.

However, to ensure adequate protection for the ‘business angels’ the consultation document proposes that the promoter must disclose a number of important facts to potential investors including:

• an indication that the promotion has not been approved by an authorised person under the Financial Services and Markets Bill;
• the meaning of high net worth;
• a risk warning concerning the maximum amount which the investor could lose; and
• an indication that any investor who has any doubts should consult a suitably qualified adviser.

The Financial Promotion consultation paper proposes legislation which is designed to embrace the technological revolution and to keep up with increasing technological change in financial services, whilst maintaining appropriate levels of consumer protection and facilitating consumer choice. This paper is the second part of a two stage process begun in March this year. Today’s paper includes a draft statutory instrument for comment by interested parties.

The promotion rules proposed by the Government in this paper reflect new opportunities offered by the Internet. By including the exemptions in secondary legislation, the Government will be able to keep them up to date as technology develops, and to respond to EU and wider international developments.