FSMA 2000 s.238 – Restrictions on promotion

(1)An authorised person must not communicate an invitation or inducement to participate in a collective investment scheme.

(2)But that is subject to the following provisions of this section and to section 239.

(3)Subsection (1) applies in the case of a communication originating outside the United Kingdom only if the communication is capable of having an effect in the United Kingdom.

(4)Subsection (1) does not apply in relation to—

(a)an authorised unit trust scheme;

[^F1829 (aa)an authorised contractual scheme;^F1829]

(b)a scheme constituted by an authorised open-ended investment company; or

(c)a recognised scheme.

(5)Subsection (1) does not apply to anything done in accordance with rules made by the [^F1830FCA^F1830] for the purpose of exempting from that subsection the promotion otherwise than to the general public of schemes of specified descriptions.

(6)The Treasury may by order specify circumstances in which subsection (1) does not apply.

(7)An order under subsection (6) may, in particular, provide that subsection (1) does not apply in relation to communications—

(a)of a specified description;

(b)originating in a specified country or territory outside the United Kingdom;

(c)originating in a country or territory which falls within a specified description of country or territory outside the United Kingdom; or

(d)originating outside the United Kingdom.

(8)The Treasury may by order repeal subsection (3).

(9) “Communicate” includes causing a communication to be made.

(10) “Promotion otherwise than to the general public” includes promotion in a way designed to reduce, so far as possible, the risk of participation by persons for whom participation would be unsuitable.

(11) “Participate”, in relation to a collective investment scheme, means become a participant (within the meaning given by section 235(2)) in the scheme.

Read section 238 in the full Act → Definitions (11) Cases (4)

Definitions used in section 238

authorised person: “authorised person” has the meaning given in section 31(2);
Defined in s.417(1) · see it in the full Act; (2) In this Act “authorised person” means a person who is authorised for the purposes of this Act.
Defined in s.31(2) · see it in the full Act
collective investment scheme: (1) In this Part “collective investment scheme” means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
Defined in s.235(1) · see it in the full Act; “collective investment scheme” has the meaning given in section 235;
Defined in s.417(1) · see it in the full Act
an authorised unit trust scheme: “an authorised unit trust scheme” means a unit trust scheme which is authorised for the purposes of this Act by an authorisation order in force under section 243;
Defined in s.237(3) · see it in the full Act
an authorised contractual scheme: “an authorised contractual scheme” means a contractual scheme which is authorised for the purposes of this Act by an authorisation order in force under section 261D(1);
Defined in s.237(3) · see it in the full Act
an authorised open-ended investment company: “an authorised open-ended investment company” means a body incorporated by virtue of regulations under section 262 in respect of which an authorisation order is in force under any provision made in such regulations by virtue of subsection (2)(l) of that section;
Defined in s.237(3) · see it in the full Act
authorised open-ended investment company: “authorised open-ended investment company” has the meaning given in section 237(3);
Defined in s.417(1) · see it in the full Act
a recognised scheme: “a recognised scheme” means a section 271A scheme or a scheme recognised under section ... 272 (and see also section 282C) .
Defined in s.237(3) · see it in the full Act
rule: “rule” means a rule made by the FCA or the PRA under this Act;
Defined in s.417(1) · see it in the full Act
the FCA: (2) The Financial Conduct Authority is in this Act referred to as “the FCA”.
Defined in s.1A(2) · see it in the full Act; “the FCA” means the Financial Conduct Authority;
Defined in s.417(1) · see it in the full Act
Specified: (5) “Specified” means specified in an order made by the Treasury.
Defined in s.22(5) · see it in the full Act
participants: (2) The arrangements must be such that the persons who are to participate (“participants”) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.
Defined in s.235(2) · see it in the full Act

Cases considering section 238 (4)

KVB Consultants Limited & Ors v Jacob Hopkins Mckenzie Limited & Ors

[2023] EWHC 1686 (Comm) · 6 July 2023

The court held that invitations or inducements to participate in the unlawful collective investment schemes breached section 238, supporting the investors’ statutory claims against the responsible principal. (see paras [67]-[71])

KVB Consultants Limited & Ors v Jacob Hopkins McKenzie Limited & Ors

[2024] EWCA Civ 765 · 9 July 2024

The court treated promotion of the schemes as activity subject to the prohibition on communicating invitations or inducements to participate in collective investment schemes (see paras [30]; [55]).

Christopher Bernard Upham & Ors v HSBC UK Bank plc

[2024] EWHC 849 (Comm) · 26 April 2024

The provision was used to explain why the Eclipse scheme was unregulated and could not generally be marketed to the public, subject to the applicable exemptions. (see para [526])

Certain Limited Partners in Henderson PFI Secondary Fund II LLP v Henderson PFI Secondary Fund II LP & Ors[2012] EWHC 3259 (Comm) · 16 November 2012

What each judgment says about section 238 is in the case-law panel in the full Act.

Explanatory note

458.This section contains the basic marketing prohibition and some exemptions from it. The main exemption is for schemes which are marketed other than to the general public. Other exemptions include promotions made in respect of authorised unit trust schemes, authorised oeics and recognised overseas schemes. The marketing prohibition applies to communications which originate outside the United Kingdom if the communication is capable of having an effect in the United Kingdom.

459.Subsection (6) enables the Treasury by order to specify circumstances in which the subsection (1) prohibition does not apply. For incoming promotions, subsection (7) makes it clear that it will be possible to make exemptions dealing with promotions originating outside the United Kingdom even if they are capable of having an effect in the United Kingdom. Thus, subsection (7) makes clear that the order-making power in subsection (6) enables the Treasury to adjust the scope of the restriction on promotion of collective investment schemes by authorised persons to take full account of international and technological developments.

460.The term “promotion otherwise than to the general public” is amplified in subsection (10) and includes promotions which are designed, so far as possible, to reduce the risk of participation by persons for whom it would be unsuitable. The prohibition on marketing to the general public will not therefore necessarily be breached if a promotion is inadvertently received by a member of the general public.

All the explanatory notes for the Act

Amendments and notes

3 notes from legislation.gov.uk

Amendments

F1829S. 238(4)(aa) inserted (6.6.2013) by The Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 (S.I. 2013/1388), regs. 1, 3(7) (with reg. 24)
F1830Word in ss. 237-239 substituted (1.4.2013) by Financial Services Act 2012 (c. 21), s. 122(3), Sch. 18 para. 9(1)(2) (with Sch. 20); S.I. 2013/423, art. 3, Sch.

Commencement

I36S. 238 wholly in force at 1.12.2001; s. 238 not in force at Royal Assent see s. 431(2); s. 238 in force for certain purposes at 25.2.2001 by S.I. 2001/516, art. 2(b), Sch. Pt. 2; s. 238 in force for specified purposes at 18.6.2001 by S.I. 2001/1820, art. 2, Sch.; s. 238 in force in so far as not already in force at 1.12.2001 by S.I. 2001/3538, art. 2(1)