The European Commission has published a consultation paper in connection with its review of the Prospectus Directive.

Background

The Prospectus Directive, Directive 2003/71/EC, was implemented in 2005 and was subsequently updated following a review in 2010. The Directive, together with its Implementing Regulation No. 809/2004, lays down the rules governing the prospectus that must be made available to the public when a company makes an offer or an admission to trading of transferable securities on a regulated market within the EU.

The prospectus contains information about the offer, the issuer and the securities, and must be approved by the competent authority of a Member State before the beginning of the offer or the admission to trading of the securities.

In Ireland, the Prospectus Directive was implemented into domestic law by the Prospectus (Directive 2003/71/EC) Regulations 2005, SI No. 324. The competent authority in Ireland is the Central Bank of Ireland which has issued Prospectus Rules, contained in the Prospectus Handbook

Review of Prospectus Directive 

The Commission is required to assess the application of the Directive by 1 January 2016 but, states in the consultation paper that given the importance of making progress towards a Capital Markets Union, that it has decided to bring the review forward.

The Commission states that the review will seek to ensure that a prospectus is required only when it is truly needed, that the approval process is as smooth and efficient as possible, the information that must be included in prospectuses is useful and not burdensome to produce and that barriers to seeking funding across borders are reduced.

Objectives of the review

The Commission believes that there are several potential shortcomings of the current prospectus framework, as follows:

  • The process of drawing up a prospectus and having it approved by the national competent authority is often perceived as expensive, complex and time-consuming, especially for SMEs and companies with reduced market capitalisation;
  • Member States have been inconsistent in applying the flexibility in the Directive to exempt offers of securities with a total value below €5 000 000;
  • The requirement to produce a prospectus appears to be triggered at different levels across the EU;
  • There are indications that prospectus approval procedures are, in practice, handled differently between Member States; and
  • Prospectuses have become overly long documents, which has brought into question the effectiveness of the Directive from an investor protection perspective.

According to the Commission, the objectives of the review of the Directive are:

  1. to reform and reshape the current prospectus regime in order to make it easier for companies to raise capital throughout the EU and to lower the associated costs, while maintaining effective levels of consumer and investor protection; and
  2. to update it to reflect market and regulatory developments including the development of multilateral trading facilities (MTFs), creation of SME growth markets and organised trading facilities (OTFs), and the introduction of key information documents for packaged retail and insurance-based investment products (PRIIPs) under Regulation (EU) No 1286/2014.

Framework of consultation 

The fundamental aspects of the Directive under review are grouped under the following headings:

  • A. When a prospectus is needed: the scope of the requirement to prepare a prospectus;
  • B. What information a prospectus should contain: the contents of a prospectus and the responsibility attaching to it; and
  • C. How prospectuses are approved: the role of national competent authorities in the approval process of prospectuses, the equivalence of third-country prospectus regimes.

The consultation paper seeks feedback on the following questions:

  1. Is the principle, whereby a prospectus is required whenever securities are admitted to trading on a regulated market or offered to the public, still valid? In principle, should a prospectus be necessary for:
  • admission to trading on a regulated market; and
  • an offer of securities to the public?

Should a different treatment be granted to the two purposes (i.e. different types of prospectus for an admission to trading and an offer to the public).

  1. In order to better understand the costs implied by the prospectus regime for issuers:
    1. Please estimate the cost of producing the following prospectus
      • equity prospectus;
      • non-equity prospectus;
      • base prospectus; and
      • initial public offer (IPO) prospectus
    2. What is the share, in per cent, of the following in the total costs of a prospectus:
      • Issuer's internal cost;
      • Audit costs;
      • Legal fees;
      • Competent authorities' fees; and
      • Other costs.

What fraction of the costs indicated above would be incurred by an issuer anyway, when offering securities to the public or having them admitted to trading on a regulated market, even if there were no prospectus requirements, under both EU and national law?

  1. Bearing in mind that the prospectus, once approved by the home competent authority, enables an issuer to raise financing across all EU capital markets simultaneously, are the additional costs of preparing a prospectus in conformity with EU rules and getting it approved by the competent authority outweighed by the benefit of the passport attached to it?

Next steps

Responses to the consultation paper should be made through the online questionnaire in the consultation paper by Wednesday 13 May 2015.

The Commission states that on the basis of the responses to the consultation, other feedback and its own analysis, it will decide in the coming months how the Prospectus Directive can be amended.

Proposals for such amendments would then be prepared in the second half of 2015 and be presented to the European Parliament and Council, together with the review of the application of the Prospectus Directive early in 2016.