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In the context of UK regulations a qualified investor (“QI”) is one who falls within the definition contained in Section 86(7) of the Financial Services and Markets Act (“FSMA”) and who is listed on the Qualified Investor Register (“QIR”) maintained by the Financial Services Authority (“FSA”).

The Financial Services Authority maintains a register of QIs, which is available to all issuers, and offerors, which allows them to sell securities to these people without the requirement to publish a prospectus.

Under Section 85(1) of FSMA it is illegal for transferrable securities to which Section 85(1) applies to be offered to the public in the UK unless an approved prospectus has been made available to the public before the offer is made.

However there are a number of exemptions which allow securities to be offered to licensed financial institutions and other persons who self-certify that they meet the requirements of Section 86(7) to be classified as a QI.

QIs can be natural persons or Small or Medium Sized Entities (“SMEs”) entities who certify that they meet the required criteria.

Individuals must meet at least two of the following three criteria to qualify for inclusion on the QIR:

  1. They must have carried out transactions of a significant size (at least EUR 1,000) on securities markets at an average frequency of, at least, ten per quarter for the last four quarters.
  2. Their security portfolio must exceeds EUR 0.5 Million.
  3. They work – or have worked for at least one year – in the financial sector in a professional position which requires knowledge of securities investment.

SMEs must meet at least two of the following three criteria to qualify for inclusion on the QIR:

  1. Average number of employees is less than 250.
  2. Total balance sheet does not exceed EUR 43,000,000.
  3. Annual net turnover does not exceed EUR 50,000,000.

The purpose of the exercise is to enable companies, investment trusts and the like to sell shares or other financial securities to people who have an in depth understanding of the financial markets and who do not need all the explanations and warnings which come with the issue of a prospectus.

Note that any person or company wishing to be placed on the register must self-certify that they meet the criteria and no check is made that this is true. Therefore if they loose money they cannot claim that they didn’t know what they were doing.

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