On 30 November 2015, the European Commission published its widely anticipated draft proposal for a regulation on the revision of Directive 2003/71/EC (the Prospectus Directive).  TheProspectus Directive provides for the Commission to review the directive by 2016.  The publication follows the Commission's consultation paper published on 18 February 2015.

This review is seen as an important step to build the Capital Markets Union (CMU) (for more information on the CMU please see our client alert) and follows on from its:

One of the key CMU priorities is more funding choices for European businesses and SMEs including the capital markets.  Accessing these can be costly and time consuming in part because of the Prospectus Directive regime.  The draft regulation tries to address these issues.

The draft regulation contains some new high-level (level 1) provisions, but, much more important detail remains to be provided via level 2 regulations yet to be published.  Key provisions in the draft regulation to note include the following:

  • A new universal registration document for frequent issuers.  Any issuer with its registered office in an EU Member State whose securities are admitted to trading on a regulated market or a multilateral trading facility can draw up every financial year a universal registration document describing the company's organisation, business, financial position, earnings and prospects, governance and shareholding structure.  Once its universal registration document has been approved by its competent authority for three consecutive years, subsequent universal registration documents can be filed annually without prior approval.  It is envisaged that this should result in cost reductions for frequent issuers.
  • Quicker approval times for frequent users.  Competent authorities will have five working days in which to notify frequent issuers of the approval of a prospectus.
  • A new approach to risk factors to ensure that they are tailored to specific deals.  Issuers will need to limit risk factors to risks that are specific to the situation of the issuer and/or the securities and are material for taking investment decisions.  The risk factors must be presented in three distinct categories which shall differentiate them by their relative materiality based on the issuer's assessment of the probability of their occurrence and the expected magnitude of their negative impact.  In the prospectus summary, issuers will need to limit the risks to the five most material risk factors specific to the securities.
  • Removal of exemption for public offers of non-equity securities denominated at EUR 100,000 or above.  The regulation removes the clear exemption for such non-equity securities (commonly referred to as "wholesale" securities).  The dual standard of disclosure (retail/wholesale) for non-equity securities is therefore removed and it is envisaged that a unified prospectus template will be defined through delegated acts, taking the existing wholesale disclosure annexes as a starting point and adding only the information items necessary for retail investor protection.
  • Changes to certain exemptions.  A limit of 20% (up from 10%) is imposed in respect of the exemption when securities are being admitted to trading on a regulated market which are fungible with securities already admitted.  This exemption also now extends to securities, rather than shares, which widens its scope to, for example, GDRs.  The exemption for admission of shares arising on a conversion or exchange of securities is restricted to 20% of shares of the same class over a 12 month period.
  • Summary for all prospectuses.  The requirement for a summary will now apply to all securities not just "retail" securities.  Other changes are also proposed to the contents of the summary.
  • New minimum disclosure regime for SMEs and certain secondary issuers.  The SME regime will apply to offers of securities to the public by SMEs, provided that they have no securities admitted to trading on a regulated market.  Secondary issuers can use the minimum disclosure regime if they have been admitted to trading on a regulated market or an SME growth market for at least 18 months.  Each regime shall consist of a specific registration document and a specific securities note.  The reformed minimum disclosure rules for secondary issuances is aimed at reducing the cost of drawing up prospectuses and makes the resulting disclosure more relevant for potential investors.
  • New free online access to centralised storage mechanism of all published prospectuses.  ESMA will publish all prospectuses received from competent authorities (and related final terms and supplements) on its website via a centralised storage mechanism.
  • In addition, the European Commission has also adopted the delegated regulation on the approval process and publication process of a prospectus and advertisements, which is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority (ESMA) to the European Commission on 26 June 2015.  Directive 2014/51/EU (the Omnibus II Directive) required ESMA to look at these particular areas of the Prospectus Directive.  The delegated regulation includes requirements for amended advertisements to be disseminated where there has been a significant new factor, material mistake or inaccuracy.  Any amended advertisements will need to make reference to the previous advertisement and specify the differences between the two versions of the advertisement.

The CMU is part of President Juncker's EUR315bn investment plan to strengthen Europe's economy and stimulate investment to create jobs.  In addition to the Action Plan, the European Commisson has published:

  • legislative proposals relating to Securitisation and Solvency II legislation;
  • a consultation on how to build a pan-European covered bond framework; and
  • a call for evidence on the cumulative impact of financial reforms and a consultation on venture capital.

You can access these publications by clicking here.

The European Commisson intends for a "well-functioning and integrated" CMU to be established by 2019 and will assess its progress on an annual basis as well as conduction a full review in 2017.

Next Steps

The draft regulation will now pass to the European Parliament and Council for their review and ESMA will be tasked with preparing the regulatory technical standards which will provide more information on the detailed annexes including those for guaranteed, asset-backed securities and other structured finance instruments.  Once adopted, the proposed regulation will replace the Prospectus Directive, which will be repealed, along with its corresponding measures.  Prospectuses that have been approved under the Prospectus Directive before the draft regulation enters into force will continue to be governed by the Prospectus Directive until the end of their validity or twelve months after the entry into force of the draft regulation, whichever is the earliest.

For more information please see the following European Commission additional publications:

Fact Sheet:  Revamping the prospectus, the gateway to European Capital Markets

Press release:  The Commission proposes to overhaul prospectus rules to improve access to finance for companies and simplify information for investors 

  • legislative proposals relating to Securitisation and Solvency II legislation;
  • a consultation on how to build a pan-European covered bond framework; and
  • a call for evidence on the cumulative impact of financial reforms and a consultation on venture capital.