As reported previously, the new Prospectus Regulation (EU Regulation 2017/1129) ("Prospectus Regulation") will replace the existing Prospectus Directive and be directly effective across all EU member states, without any requirement for it to be implemented into national law. The Prospectus Regulation entered into force on 20 July 2017 and certain of its provisions are already effective. However, the vast majority of the changes will only apply from 21 July 2019.
The idea behind the new Prospectus Regulation is part of the EU Commission's Action Plan to create a capital markets union which aims to tackle investment shortages by facilitating and diversifying funding sources for companies across Europe and to offer investors and savers additional opportunities to invest their money.
The final provisions of the Prospectus Regulation that take effect on 21 July 2019 of note are as follows:
EU Growth Prospectus
From 21 July 2019, the new EU `Growth prospectus' regime will be available to assist small and growing companies that are seeking to raise money across the single market by reducing the cost of preparing a prospectus and therefore make it more proportionate to the funds raised. The regime enables SME qualifying companies that do not have their securities admitted to trading on a regulated market to benefit from the ability to produce an abbreviated and standardised form of a prospectus, with:
- information presented in the prospectus in a standardised sequence and written in simple language, which is easy for issuers to complete; and
- reduced content requirements consisting of a: (a) specific summary; (b) specific registration document and (c) specific securities note.
To qualify for the regime, the company must fall within one of the following categories:
- A small or medium sized enterprise ("SME") comprising those that: (a) had an average market capitalisation of less than 200 million for the previous three calendar years; or (b) during the previous financial year either: (i) it had an average employee count during the financial year of less than 250; or (ii) it had a total balance sheet not exceeding 43 million and annual net turnover not exceeding 50 million;
- Issuers, other than SMEs, making an offer of securities to the public either: (a) that are to be admitted to trading on an SME growth market, but provided that those issuers had an average market capitalisation of less than 500 million for the previous three calendar years; or (b) with a total consideration in the EU not exceeding 20 million, calculated over a period of 12 months (provided that those issuers have no securities traded on a multi-trading facility and had no more than 499 employees during that period).
Universal Registration Document
There will be a new form of shelf registration mechanism, the Universal Registration Document ("URD") for issuers seeking to raise funds through the capital markets on a regular basis. The mechanism will be available to issuers whose securities are admitted to trading on a regulated market or on a multilateral trading facility (such as AIM). Where the issuer has had a URD approved by a relevant competent authority then it will benefit from a fast track approval process and, furthermore, where it has been approved for two consecutive years then subsequent URDs can be filed or amended without prior approval (subject to the ability for it to be subsequently reviewed by the competent authority if it deems it necessary).
A simplified disclosure regime will apply to companies seeking to raise further capital where they have had their securities admitted to trading on a regulated market or an SME Growth Market (such as AIM) for at least the previous 18 months.
Issuers who meet these requirements will be able to benefit from a reduced disclosure regime whereby it will only need to publish a short form prospectus containing information on the issuer and its business. In particular, historic financial information contained in this shorter prospectus will be significantly reduced and may also be incorporated by reference. This proposal recognises the less risky nature of follow-on fundraisings conducted by listed companies, given the continuing disclosure obligations to which those companies are subject.
Wholesale Disclosure Regime
The Prospectus Regulation permits a reduced standard of disclosure for prospectuses prepared by issuers for admissions to trading of non-equity securities (e.g. bonds) on regulated markets and to which only qualified investors will have access or, irrespective of the market on which the securities are to be listed, any nonequity securities that have a minimum denomination of at least 100,000.
Issuers will need to limit the risk factors contained in a prospectus to a maximum of 15 and to those which they determine to be material and specific to the issuer. Additionally, risk factors will have to be categorised according to their nature, with the most material ones appearing first. Risk factors must be corroborated elsewhere in the prospectus.
The assessment of the materiality of the risk factors may be disclosed by using a qualitative scale of low, medium or high, although this is not compulsory. `Materiality' here in relation to the risk factors refers to the probability of occurrence and the expected magnitude of negative impact.
Requirements for Prospectus Summaries
From 21 July 2019, there are new requirements for summaries contained in a prospectus, including a limit on the length of a summary of no more than seven sides of A4 paper. The summary should be prepared in non-technical language which conveys the essential characteristics and risks associated with the issuer, any guarantor and its securities. This must be in the language in which the prospectus was originally drawn up. Unless member states determine otherwise, summaries are not required for issuers who are able to rely on the wholesale disclosure regime (i.e. wholesale bonds listed on a regulated market or non-equity securities issued in denominations above 100,000).
Incorporation of Information by Reference
Issuers able to incorporate a wider range of documents by reference, including all regulated information, management reports and corporate governance documents. Information may be incorporated by reference into a prospectus where it has been previously or simultaneously published electronically, and drawn up in a language fulfilling the requirements of the Prospectus Regulation.
New Cross-Reference Lists and Checklists
On 26 April 2019, the Financial Conduct Authority issued a press release announcing that it has published new cross-reference lists for issuers to use when submitting documents for FCA approval under the Prospectus Regulation together with new Listing Rules checklists. The new lists are to be used for submissions to be approved on or after 21 July 2019. The new cross-reference lists are for issuers to show the FCA how they have complied with the applicable disclosure requirements when submitting documents for FCA approval under the Prospectus Regulation. The Listing Rules checklists are for issuers to confirm and explain compliance with the Listing Rules' eligibility requirements for admission of securities to the Official List.
UK implementation of the new Prospectus Regulation
As stated above, the new Prospectus Regulation will be implemented in full on 21 July 2019 when all of the remaining provisions which are not currently in force will then become effective. Technically, the UK Government would not be required to implement the new Prospectus Regulation in the event of a "no deal" Brexit, although it has indicated that it would still look to implement its provisions even in such eventuality. As such, the expectation is that the new Prospectus Regulation will apply to the UK as it does in respect of the other EU member countries on 21 July 2019.