Facilitating capital market access in the lasting global low interest environment
The new EU Prospectus Regulation 2017/1129 (EU PR), which entered into force on 21 July 2019, furthers the European Council’s threefold objective to reduce the administrative burden on companies, facilitate information intake for investors and increase access to a diversified funding market.
It does so through the introduction of, among others: Offerings on the smaller end of the spectrum benefit directly from two raised prospectus obligation thresholds set out below;
A newly presented ‘EU Growth Prospectus’ option allows predominantly SME sized issuers to disclose investment information on the basis of a relatively short template document;
A simplified regime has been adopted to alleviate disclosure requirements for secondary issuances of securities trading on a regulated or SME market.
The overall rationale behind those threshold adjustments is to facilitate access to capital markets by subjecting less small-scale offerings to costly prospectus obligations. Market participants hope this will be a vital step towards a more diversified funding market and completion of the EU’s integrated capital markets union.
While many member state governments have been slow to respond to the EU Commission's repeated requests to further this integration, all now operate on the same basis provided by the EU PR.
Belgium lived up to its obligations under the EU PR by implementing its new national act on the offering of investment instruments dated 11 July 2018 (the Belgian Prospectus Act).
In line with the EU PR, the new Belgian Prospectus Act raised its prospectus requirements thresholds. In principle, in Belgium an offer to the public of investment instruments does not require the publication of a prospectus if its total consideration in the EU (calculated over a 12-month period):
- does not exceed EUR5 million; or
- does not exceed EUR8 million, provided that the instruments are admitted to trading on an MTF designated by Royal Decree.
In situations where, pursuant to the above or more specific exemptions, it is not mandatory to publish a prospectus, offers will henceforth require the publication of an information note.
In practice, the content requirements for an information note are substantially less elaborate than for a fully-fledged prospectus. Pre-contractual information disclosure must be restricted to the bare minimum and presented in understandable form. The information note describing the issuer and highlighting the main risks related to its offering must be limited to 15 pages in total.
Additionally, a new de minimis exemption to disclosure obligations is introduced for offers with a total value below EUR500,000 (calculated over a 12-month period) in which subscriptions are limited to a maximum of EUR5,000 per investor. This should reduce the administrative burden for many of today’s crowdfunding initiatives.
Advertisements relating to (a) an offer of securities to the public in Belgium or (b) admission to trading on a Belgian regulated market of investment instruments, have to be submitted to the Belgian Financial Services Markets Authority (FSMA) for prior approval. The advertisements regime established in article 22 of the EU PR does not apply to offers or admissions which do not require the publication of (i) a prospectus pursuant the EU PR or (ii) an information note pursuant to the Belgian Prospectus Act.
However, it must be noted that in Belgium the regime does apply even where no prospectus is required but only an information note, such as for offers for an amount lower than the EUR5 million or the EUR8 million threshold. In such cases, however, the advertisement does not have to be submitted to the FSMA for approval.
Following the introduction of the EU PR, amendments to the Italian financial markets legal framework have to date involved regulation No. 11971 of 14 May 1999 (the so-called Italian Issuers Regulation) issued by Consob, the Italian securities market authority. No amendments have yet been made to the Italian Financial Consolidation Act, although the expected future changes should only be related to the repeal of the provisions now inconsistent with the EU PR and any necessary alignments.
The amendments to the Italian Issuers Regulation, which have been adopted following a public consultation, included the repeal of the provisions which were either non-compliant with, or already covered by, the EU PR and the introduction of provisions intended to regulate the areas which had been left to each member states’ discretion.
First of all, Consob has decided to exercise the power set forth in Article 3 par. 2 of the EU PR and, therefore, the exemption threshold concerning the offering of securities to the public has been increased to EUR8 million (previously it was set at EUR5 million). This is expected to reduce the costs of producing a prospectus with a view to simplifying access to the capital markets for small and medium-sized enterprises.
Secondly, issuers will not be required (i.e. it remains in their discretion) to replace the section of the summary note concerning the securities with the key information document (KID).
Thirdly, important amendments have been made in relation to the language regime for non-equity securities issuers. The Italian Issuer Regulation now expressly envisages the possibility of drafting the prospectus in respect of non-equity securities falling under art. 2, lett. m), point ii) of the EU PR, in a language that is customary in the sphere of international finance (e.g. English) for all prospectuses involving offers carried out in Italy (save for the summary note that shall be in Italian, if required).
Finally, the Italian Issuers Regulation includes some provisions, which are not foreseen by the EU PR, setting up maximum time limits for the approval procedures of prospectuses. In particular, approval procedures shall not exceed:
- 30 working days, in the case of securities issued by frequent issuers;
- 40 working days, in the case of securities already listed on a regulated market;
- 60 working days, in the case of securities not listed on a regulated market; and
- 70 working days, in the case of financial instruments other than securities, as defined in art. 2, lett. a) of the EU PR.
However, such time limits shall not apply in some particular cases, such as when, during the process of approval, significant information concerning new extraordinary transactions or changes in the corporate governance are inserted in the relevant prospectus.
The EU PR was implemented in the Grand Duchy of Luxembourg by the law of 16 July 2019 on prospectuses for securities (Law) that entered into force on 21 July 2019 and which governs provides the Luxembourg rules that apply to offers of securities to the public and admissions to trading on a regulated market of securities. The Law repeals and replaces the previous law of 10 July 2005 on prospectuses for securities (Old Law).
The main changes under the Law can be summarized, among others, as follows:
- the introduction of a new exemption from the requirement to publish a prospectus for small-scale offerings, as Luxembourg decided to exempt offers of securities to the public with a total consideration of less than EUR8 million in the EU calculated over a period of 12 months from the obligation to publish a prospectus;
- the introduction of an alleviated prospectus regime for offers of securities to the public falling out of the scope of the EU PR (as mentioned in Part III of the Law), mostly comparable to the simplified prospectus regime under the Old Law, including the option of a voluntary prospectus regime entailing the same rights and obligations as an alleviated prospectus required under the Law; and
- the Luxembourg rules still ensure the possibility of easy passporting of prospectuses to other member states and a flexible approach on language requirements.
The CSSF has published CSSF Circular 19/724 that provides guidance on the new regime and the procedure of how to file a prospectus for the approval by the CSSF, repealing the previous CSSF Circular 12/539.
Issuers should note that any prospectuses which were approved under the Old Law shall continue to be governed by the Old Law until the end of their validity or until 12 months have elapsed after 21 July 2019, whichever occurs first. The Law provides further flexibility for new issuances to be easier, cheaper and more accessible, in particular to small issuers.
The new EU PR came into force on 20 July 2017 to come into effect from 21 July 2019. At the time it came into force, there were uncertainties surrounding whether the EU PR would apply to the UK due to impact of Brexit, at the time scheduled for 29 May 2019.
To address such uncertainties, the FCA launched a consultation (CP19/6) on changes to align the FCA Handbook with the EU PR on 28 January 2019 and published a policy statement (PS19/12) on 31 May 2019. In this policy statement, the FCA confirmed that the existing Prospectus Rules be replaced with a new sourcebook, entitled the EU PR Rules (PRR). The PRR will reproduce key sections of the EU PR and relevant EU and domestic law.
Since the launch of the consultation in January 2019, it became evident that the UK will remain part of the EU until the EU PR comes into effect. As such, on 25 June 2019, the Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 (FSMA Regulations) were published to ensure that UK legislation is compatible with the EU PR. The FSMA Regulations give effect to the EU PR through amendments to the Financial Services and Markets Act 2000 (FSMA).
In particular, Part VI of the FSMA is amended in a number of respects to reflect the EU PR. The key changes are:
- The Financial Conduct Authority is granted a number of additional/further powers to:
- suspend scrutiny of a prospectus;
- refuse approval of a prospectus;
- restrict offers to the public;
- restrict admission to trading on a regulated market; and
- suspend or prohibit trading on a trading facility.
- Certain employers must have appropriate internal procedures for their employees to report contraventions and potential contraventions of the EU PR.
Further amendments were made to various primary and secondary legislation to ensure that the current UK legislative regime is in line with the rules contained within the EU PR and to minimise any potential disruption/confusion in the event of Brexit in the near future.