Notwithstanding the uncertainty surrounding the timing and ultimate destination of Brexit, European legislation continues to apply to capital markets in the UK.
In this regard, the Prospectus Regulation 2017 (the Regulation) is due to come fully into force from 21 July 2019 and will therefore apply to prospectuses vetted by the FCA.
Two key provisions of the Regulation came into force early, being: i) the increase in the exemption for an admission of shares of the same class as shares already admitted to the same regulated market from 10% to 20%, which has applied since July 2017; and ii) the ability to apply a total threshold below which a prospectus is not required for an offer of securities to the public, which has applied since July 2018 with the level in the UK being set at €8m. The key further provisions coming into force and which will apply to any prospectus published on or after 21 July 2019 are:
1. Prospectus summaries
The current requirement for a tabulated summary will disappear. In its place, issuers will have more discretion to decide on what information should be summarised.
Largely, the new requirements are based on Key Information Documents which certain issuers have had to produce in recent years.
There are still mandatory content requirements including: i) an introductory warning rubric; ii) key information on the issuer such as financial information and material risk factors (limited to 15 such risks); iii) key information on the securities; and iv) key information on the offer, such as use of proceeds.
The new style summary will be restricted in length to seven A4 pages and, as currently, cannot cross-reference to other parts of the prospectus.
2. Content requirements
The content requirements for a prospectus are subject to some change. The current requirement that the prospectus contains "the necessary information which is material to an investor" will remain an over-arching obligation. However, this has been extended to include the reasons for the issue and its impact on the issuer. The general circumstances of the issuer is a further factor which will need to be considered.
3. Risk Factors
Under the new regime, risk factors will need to be specific to the issuer and its securities and be material to investors in order to cut down on the number of boilerplate and generic risk factors in prospectuses. The risk factors must be set out in a number of limited categories.
The issuer may (but is not required to) classify risk factors within each such category by using a scale of low, medium and high, although issuers may be unwilling to so to avoid later problems if a risk factor previously flagged as “low” turns out to be significant.
4. Reduced disclosure regime
(a) Secondary issues
Given the Market Abuse Regulation (“MAR”) applies to listed issuers and provides an on-going disclosure regime, the Regulation brings in a reduced disclosure prospectus for secondary issues for any issuer which has been listed on a regulated market or an SME growth market for at least 18 months. In the UK, AIM and NEX Growth are classified as SME growth markets.
The mandatory information required in such a prospectus will include:
- annual and half-yearly financial information published over the 12 months prior to the date of the prospectus (which can be incorporated by reference);
- pro-forma financial information (if applicable);
- profit forecasts and estimates (if any are in the market);
- a summary of information disclosed under MAR over the 12 months prior to the prospectus;
- risk factors; and
- a working capital statement, capitalisation and indebtedness statement, a disclosure of relevant conflicts of interest, related-party transactions, and details of major shareholders.
In addition, it is further proposed that this reduced disclosure regime will also apply to an issuer seeking a move from an SME Growth Market to a regulated market where the issuer has been listed for at least two years.
(b) EU growth prospectus
The second aspect of the reduced disclosure regime is to provide streamlined content requirements for secondary issues undertaken by:
- SMEs not traded on regulated markets (SMEs being entities with a sub-€200m market cap over the previous two years or meeting certain employee, balance sheet and net turnover thresholds);
- issuers, other than SMEs, whose securities are traded on an SME growth market, with a sub-€500 million market cap over the previous three years; and
- other issuers so long as they are not traded on an MTF and with fewer than 500 employees where an offer of securities to the public in the EU does not exceed more than €20 million calculated over a period of 12 months.
5. Review by regulators
Currently, once an IPO prospectus is submitted to the FCA, they have 10 business days to review the initial draft and then aim for 5 working days to review each subsequent submission. From 21 July, the FCA will have 20 working days for the initial review but have not yet confirmed what their stated aim for subsequent submissions will be.
For “frequent issuers”, the Regulation creates a new regime whereby a “Universal Registration Document” (URD, essentially a shelf registration document) can be submitted. If an issuer has an URD approved in two consecutive years, subsequent URDs can be filed or amended without prior approval, and a prospectus using such URDs benefits from an approval process of 5 working days.