Navigating Financial Promotions And Public Offers: Key Changes For Co-operative And Community Benefit Societies

Raising capital from the public? New rules for Co-operative and Community Benefit Societies.

Introduction

The UK's financial regulatory landscape is evolving, with significant implications for co-operatives (Co-ops) and community benefit societies (CBSs) involved in raising capital by issuing securities, such as shares or bonds. Recent updates—most notably the Public Offers and Admission to Trading Regulations 2024 (2024 Regulations)—bring new clarity and requirements to financial promotions and public offers. Here's what Co-ops and CBSs need to know.

Financial promotion prohibition: the basics for Co-ops and CBSs

The financial promotion prohibition under the Financial Services and Markets Act 2000 restricts unauthorised persons (which could be a Co-op or CBS) from communicating "invitations or inducements to engage in investment activity in the course of business" (i.e. for commercial purposes to invite or encourage someone to invest in certain investments). To comply, such promotions must either be issued or approved by an FCA-authorised/approved firm/person, or fall under a specific, FCA-defined exemption.

Of relevance to Co-ops and CBSs...

• The withdrawable share capital of a Co-op or CBS does not constitute a type of security which is caught by the financial promotion prohibition. On the other hand, the transferable share capital of a Co-op or CBS does constitute this type of security and therefore requires a financial promotion approval by an approved person (unless an exemption applies).
• Under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, subject to certain requirements bonds issued by a Co-op or CBS are specifically exempted from the financial promotion prohibition.

The UK prospectus regime

Working in parallel to the financial promotion prohibition, the UK prospectus regime governs disclosure requirements for securities, such as shares or bonds, offered to the public and/or admitted to trading on a regulated market (such as the stock exchange). That regime has been replaced by the 2024 Regulations which came into effect for limited purposes in January 2025, and will be fully effective from 19 January 2026.

Under the 2024 Regulations, it is unlawful for "relevant securities" "to be offered to the public" in the United Kingdom unless the offer is of a kind (or combination of kinds) specified in part 1 of schedule 1 to the 2024 Regulations. We refer to this prohibition below as the "POAT Prohibition".

If the total consideration for an offer of relevant securities (Offer A) amounts to at least £1,000,000 (when taken together with any other offer of relevant securities issued or to be issued by the same offeror which was open at any time within the period of 12 months ending with the day on which Offer A is first made), in the event that "material information" is disclosed by, or on behalf of, an issuer or offeror and addressed to one or more selected investors in oral or written form, that information must be disclosed to all other investors to whom the offer is addressed. The 2024 Regulations do not define what is meant by "material information", so that term should be widely interpreted. We refer to this requirement below as the "Disclosure Requirement".

To understand the scope of the 2024 Regulations, important terms include:

• "relevant securities" - (i) "transferable securities", other than "excluded securities" and (ii) instruments creating or acknowledging indebtedness (such as loans, bonds and loan notes) that are not "excluded securities". This means that loans, bonds and loan notes (whether transferable or non-transferable) constitute relevant securities for the purposes of, and are therefore caught by, the 2024 Regulations.
• "transferable securities" - those classes of securities which are negotiable on "the capital market". The 2024 Regulations do not define what is meant by "the capital market". Therefore, if there is no capital market for shares, notwithstanding that they may be capable of transfer, they will not constitute transferable securities for the purposes of, and therefore not be caught by, the 2024 Regulations.
• "excluded securities" - securities issued by a "qualifying body", which includes a charity, a housing association, a CBS, but not a Co-op.
• "offer of securities to the public" - a communication to any person which presents sufficient information on — (a) the relevant securities to be offered, and (b) the terms on which they are to be offered, to enable an investor to decide to buy or subscribe for the relevant securities in question.

Exemptions from the POAT Prohibition include offers of relevant securities to the public where the total consideration for the relevant securities being offered does not exceed £5 million, and an offer of relevant securities that is made by means of a regulated platform (a Public Offer Platform). Being a Public Offer Platform is regulated by, and requires authorisation from, the FCA. See here: https://www.fca.org.uk/publication/policy/ps25-10.pdf.

Public offers by Co-ops and CBSs

This means that public offers in respect of:

• the issue by a Co-op or a CBS of its withdrawable share capital, is exempt from the POAT Prohibition (and the Disclosure Requirement) and does not require a financial promotion approval (by an approved person);
• the issue by a Co-op of its transferable share capital, is exempt tom the POAT Prohibition where it is not negotiable on a capital market (as it does not constitute a "transferable security"). However, it still requires a financial promotion approval;
• the issue by a Co-op of bonds – whether transferable or non-transferable:
• if under £1,000,000 is exempt from the POAT Prohibition (and the Disclosure Requirement);
• if over £1,000,000 but under £5,000,000, is exempt from the POAT Prohibition but needs to satisfy the Disclosure Requirement; and
• if over £5,000,000, is caught by the POAT Prohibition meaning it needs to be made by means of a Public Offer Platform (unless another exemption applies) and needs to satisfy the Disclosure Requirements, but, in each case, does not require a financial promotion approval;
• the issue by a CBS of its transferable share capital, is exempt from the POAT Prohibition (and the Disclosure Requirement), but requires a financial promotion approval by an approved person; and
• the issue by a CBS of bonds – whether transferable or non-transferable, is exempt from the POAT Prohibition (and the Disclosure Requirement) and does not require a financial promotion approval.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.