On 18 February 2015 the European Commission  published a Green Paper on the Capital Markets Union (CMU) seeking consultation on numerous capital markets related matters. To achieve this Capital Markets Union, it will, among other things, review the Prospectus Directive (2003/71/EC). Consequently, alongside this green paper, the European Commission has launched a consultation on a review of the Prospectus Directive.

The objective is to review the current prospectus regime to make it easier for companies to raise capital throughout the EU and to lower the associated costs. The Prospectus Directive also needs to be updated to reflect market and regulatory developments. This includes  the development of multilateral trading facilities (MTFs) and the introduction of the Regulation on key information documents (or KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014). 

In the months following the consultation, the Commission will decide how the Prospectus Directive can be amended. The legislative proposals are expected in the second half of 2015.The legislative proposals will be presented to the European Parliament and Council in early 2016 at the latest. 

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

A. When a prospectus is needed?

The consultation requests respondents' views on: (i) a possible recalibration of the obligation for issuers to draw up a prospectus, based on the existing exemption thresholds; (ii)  the favourable treatment granted to debt issuers using high denominations per unit; and (iii) whether a prospectus should be required for secondary issuances and for the admission of securities to trading on MTFs. Below the headings are mentioned in more detail. 

A.1. Adjusting the current exemption thresholds.

A.2. Creating an exemption for "secondary issuances" under certain conditions.

A.3. Extending the prospectus to admission to trading on an MTF.

A.4. Exemption of prospectus for certain types of closed-ended alternative investment funds (AIFs).

A.5. Extending the exemption for employee share schemes.

A.6. Balancing the favourable treatment of issuers of debt securities with a high denomination per unit, with liquidity on the debt markets. 

B. What information should a prospectus contain? 

The consultation seeks feedback on: (i) ways to expand the existing tools that were intended to introduce some flexibility in the drawing up of a prospectus; (ii) enhance their effectiveness to the benefit of the issuers, while maintaining effective levels of consumer and investor protection; (iii) ways to introduce more flexibility in the process of raising capital by clarifying the relationship in the prospectus approval process with the marketing phase; and (iv) to avoid the tendency towards lengthier prospectuses and return to the original purpose of a prospectus, views are sought on the usefulness of the prospectus summary, as well as on possible limitations which could be introduced on prospectuses. As the length of a prospectus is to a certain extent linked to the liability incurred by those who prepare it, the question of the liability regime is raised, as well as the sanctions regime. Below the headings are mentioned in more detail.

B.1. Proportionate disclosure regime.

B.2. Creating a bespoke regime for companies admitted to trading on SME growth markets.

B.3. Making the "incorporation by reference" mechanism more flexible and assessing the need for supplements in case of parallel disclosure of inside information.

B.4. Reassessing the objectives of the prospectus summary and addressing possible overlaps with the key information document required under the PRIIPs Regulation.

B.5. Imposing a length limit to prospectuses.

B.6. Liability and sanctions.

C. How prospectuses are approved?

The consultation requests respondents' views on the role of national competent authorities in the approval process of prospectuses and the equivalence of third-country prospectus regimes. Below the headings are mentioned in more detail.

C.1. Streamlining further the approval process of prospectuses by national competent authorities (NCAs).

C.2. Extending the base prospectus facility.

C.3. The separate approval of the registration document, the securities note and the summary note ("tripartite regime").

C.4. Reviewing the determination of the home Member State for issues of non-equity securities.

C.5. Moving to an all-electronic system for the filing and publication of prospectuses.

C.6. Equivalence of third-country prospectus regimes.

The consultation period runs until the 13th of May 2015.On the basis of the responses received, other feedback and its own analysis, the European Commission will then determine how to amend the Prospectus Directive. We will keep you informed of further developments in that respect.