The current UK listing and prospectus regime is largely derived from the EU requirements set out in the Prospectus Directive, Transparency Directive and Market Abuse Regulation. Changes to the framework will depend on the extent to which HM Treasury and the FCA look to retain an equivalent regime through UK law and regulation which replicates the European framework.
As the London Stock Exchange is a leading international listing venue and trading platform, the UK regulators are likely to continue to require adherence to standards equivalent to the requirements imposed by the Prospectus Directive, Transparency Directive and Market Abuse Regulation, in order to maintain the strength of its global brand. Substantial divergence away from these standards seems unlikely taking into account: (i) the extent of the UK’s historic and current involvement in the development of the Single Market for EU financial services and in developing standards supported by international listing venues; (ii) that there is unlikely to be significant political pressure to make changes in this area; and (iii) that Switzerland, as an EFTA but non–EEA member, has recently overhauled its regulatory framework for capital markets to bring it closer into line with international standards, and in particular the EU Prospectus Directive.
On the other hand, it is possible that the UK authorities could decide to relax the regulatory regime at a later stage, at least in relation to certain details, on the basis that choice of listing venue is determined by a number of factors, including access to potential investors, the valuation of similar companies listed on the exchange and liquidity; not solely by the level of continuing regulation and disclosure required and that, to a degree at least, removal of certain administrative burdens could make the UK more attractive as a listing venue.
There is no reason why the UK should not remain an attractive place for IPOs. It has market liquidity and a strong international reputation. The UK is by far the largest market in Europe for investment in IPOs.
The current passporting provisions for prospectuses prepared in the UK for use elsewhere in the EU, and vice versa, would not continue post-Brexit unless a bespoke agreement is put in place between the UK and the EU which includes arrangements for mutual recognition of prospectuses. An EU Member State has the option to approve a prospectus drawn up by a non-EU issuer if it has been drawn up in accordance with international standards that are equivalent to the requirements under the Prospectus Directive. The European Commission has the power to decide whether a third country’s law or practice is sufficient to satisfy the EU equivalence test for this purpose. It could therefore make this determination in respect of prospectuses prepared under UK law and approved by the FCA. Similarly, HM Treasury and the FCA could decide to continue to accept prospectuses approved in an EU Member State for the purposes of making a securities offering in the UK.
Passporting, however, is rarely relevant in the context of IPOs, given that very few IPOs are marketed to retail investors in more than one Member State. Passporting is more relevant to rights issues where there are lower numbers of retail investors in more than one Member State. For these, individual approvals would be required in each such Member State. The effect of Brexit on the future plans for the creation of a new EU capital markets union (CMU), which aims to promote the concept of a Single Market for capital are unclear. The CMU is a European Commission initiative to strengthen capital markets in Europe. It comprises a range of reforms targeted at specific sectors and the overall EU supervisory structure. Its primary objectives are to help businesses (including small and medium-sized enterprises (SMEs)) reduce their reliance on bank-funding and access alternative sources of capital; to make markets more efficient generally and to offer investors a wider choice of financial instruments to meet their needs.