The new Prospectus Regulation, which will be directly effective in Member States, aims to unlock access to capital markets for smaller companies and lessen reliance on funding from banks. This is a key political objective of the Capital Markets Union.
The expense and length of time required to produce a prospectus is currently a barrier for small companies accessing capital markets. The aim is to return the prospectus regime to its original purpose which is to help small companies grow whilst at the same time protecting investors. The new proposals will harmonise the disclosure regimes across the EU and shorten many prospectuses, making them more user friendly for investors and reducing the risk of key information being obfuscated. The Prospectus Regulation is expected to come into effect in the course of 2017 and so its implementation is unlikely to be affected by Brexit.
The European Parliament has resolved to adopt amendments to the European Commission's proposals for a new Prospectus Regulation to replace the Prospectus Directive (2003/71/EC) and parts of the existing implementing regulation (Regulation (EC) No 809/2004). The goal behind the proposals is to make it simpler, cheaper and faster for companies to obtain funding on capital markets in the EU.
The proposals are the result of the European Commission's review of the application of the Prospectus Directive (2010/73/EU) launched in 2015. The review concluded that the introduction of the proportionate disclosure regime for SMEs in 2012 did not go far enough in reducing the administrative burdens on SMEs and has been largely ineffective.
Some of the key amendments relevant to SMEs are summarised below.
Under the proposals, as amended by the European Parliament, publishing a prospectus will not be mandatory when offers of securities are made:
- to fewer than 350 natural or legal persons per Member State and to a maximum of 4,000 natural or legal persons across the EU; or
- raising less €1,000,000 (over the period of 12 months).
Member States may decide to exempt offers of securities to the public raising between €1,000,000 and €5,000,000 from the obligation to publish a prospectus. Such offers however will not benefit from the passporting regime and will therefore be confined to that Member State.
SMEs, issuers of securities to be admitted to trading on an SME growth market and issuers of securities of a total consideration of less than €20,000,000 (calculated over the period of 12 months) will be eligible to prepare an "EU Growth prospectus". An EU Growth prospectus will be significantly lighter than a full prospectus and will be in a standardised format covering information on the issuer, the securities and the offer. The European Commission will specify through secondary legislation the reduced content and format of the standardised EU Growth prospectus
Issuers whose securities have been admitted to trading on a public market for at least 18 months and who wish to issue further securities may publish a simplified prospectus. The European Commission will specify through secondary legislation the reduced information to be included in a simplified prospectus. The intention is that prospectuses issued do not repeat large amounts of information that are already available to the market.
The summary must be limited to six A4 pages but can be extended to a maximum of ten A4 pages if the issuer's activities are complex and more information is necessary in order not to mislead investors.
Risk factors will need to be limited to material risks that are specific to the issuer and are corroborated by the content of the prospectus. Generic risk factors that serve merely as disclaimers should not be included.
A further update will follow once the implementation date is confirmed.