Regulatory developments for

early stage investments

EIS Association Technical Seminar, Belfast

Gillian Roche-Saunders, Head of Venture Finance

May 2014

EIS options

Single company raise

Fund: UCIS

Discretionary managed portfolio

Fund: Non-UCIS

End result: shares allocated to investor

Changes this year

Alternative Investment Fund Managers Directive – May 2013 response from EISA

Regulating fund managers and promoters in the EU.

What is an AIF?

A collective investment arrangement that raises capital from a number of investors and

has a defined investment policy.

When is an EIS arrangement caught?

• Fund structure rather than individual portfolio, in other words:

• Collective portfolio management

• Buying / selling shares together

• Voting rights exercised together

What is the impact?

• Limited for sub threshold managers

• Significant for full scope managers

• EIS Funds that are AIFs can be the client of the Fund Manager.

Changes this year

New Promotional rules

1. Non-mainstream Pooled Investments

Restricting all sales of funds to ordinary retail investors – extending the UCIS ban.

2. Direct Offer Financial Promotions

Limitations on certain promotions of illiquid and hard to value investments – retail

promotion still possible if certain steps taken.

Impact on EIS

•EIS & Seed EIS funds are not classified as NMPIs as long as they are not a UCIS

•EIS investments could be caught by the new DOFP rules but only for certain

promotions

•Considerations of which regime and which exemptions to use.

•Extra assessments to be done before can accept investment

•Confusion could arise with intermediaries and investors – best to pre-empt

General EIS tips

5

EIS will not be suitable for everyone

Sell the investment as well as the tax reliefs

Understand the EIS structures and select appropriate

one

Our concern is that they may be marketed to consumers based

primarily on the tax incentives offered, with investors not fully

understanding the risks involved. FSA Financial Promotions Industry Update, March 2011

6

unregulated

Investment based platforms

equity and debt securities –

direct or indirect

Loan based platforms

“peer to peer” loans

made to receive interest

and repayment of capital

Rewards

based

Non-financial

reward

Donations

based

Giving money

in support

unregulated

regulated

regulated

Other developments: crowdfunding

Regulation & crowdfunding

Investment based

Restricting who can view a pitch to professional clients unless:

• Sophisticated Investors or High Net Worth Investors (with a pre-

assessment) *

• Advised or managed sales

• Retail investor limits unlisted shares/ debt securities to 10% of

their net investable portfolio * * Appropriateness assessment is also required by the platform

Loans based

Including Business to consumer and consumer to business loans

• New FCA permission: “operating an electronic system in relation

to lending”

• Interim permission for firms with valid OFT licence

Speaker Profile

8

Gillian Roche-Saunders Consultant

T. 020 7620 8457

E. groche-saunders@bovill.com

Gillian’s key focus is supporting firms that arrange early-stage finance to

companies with regulation. She heads up our Venture Finance team and

manages our relationships with EIS and venture capital fund managers as

well as crowdfunding platforms and corporate finance advisors.

Her experience includes evaluating new products, reviewing financial

promotions, preparing firms for FCA authorisation and providing advice

and training on everything from financial crime to complaints handling.