On 15 September 2016, the European Parliament (Parliament) by a partial vote decided to move forward with certain amendments to the European Commission (Commission)’s proposal for a Prospectus Regulation, which would replace the existing Prospectus Directive (2003/71/EC) and the Prospectus Regulation (809/2004).


The Prospectus Directive (as subsequently amended) and the existing Prospectus Regulation provide a single regime throughout the EU governing the circumstances in which an issuer of securities must produce a prospectus, as well as the content, format and the regulatory approval process in respect of such prospectuses. The Commission reviewed the Prospectus Directive and consequently issued a consultation document on 18 February 2015 in which it expressed its aim to modernise the Prospectus Directive by making it less costly for businesses to raise funds publicly and by reviewing the regulatory barriers small firms face when listing on equity and debt markets. More information about this consultation can be found in our May 2015 and January 2016 editions of “Exchange – International”.

Commission proposals

The consultation closed on 13 May 2015 and subsequently, the Commission adopted a legislative proposal on 30 November 2015 to repeal and replace the Prospectus Directive in its existing form. In particular, the Commission proposed to introduce the following:

1. A higher threshold of €500,000 for the total consideration of an offer of securities in the EU before an issuer must produce a prospectus

2. A “lighter prospectus” for small and medium-sized enterprises (SMEs) (which the Parliament now suggests should be rebranded as an “EU growth prospectus”)

3. A new, simplified prospectus for companies which are already listed on the public market and want to raise additional capital by a secondary issuance

4. A new prospectus summary

5. An annual “universal registration document”

6. A single access point for all EU prospectuses

European Parliament proposals

The key amendments adopted by the European Parliament relate to the scope, exemptions, prospectus summary and “EU growth prospectus” (which is a standardised document primarily for SME issues providing key information on the issuer, the securities and the offer). More specifically, the key amendments proposed by the Parliament are in summary as follows:

1. Scope of the prospectus obligation (article 1(3)): The Commission proposed that a prospectus shall not be mandatory where an offer of securities to the public is addressed to fewer than 150 persons per member state or has a total consideration in the EU of less than €500,000 calculated across a 12-month period. The Parliament amended the Commission’s proposals suggesting that a prospectus should not be mandatory where an offer of securities to the public is addressed: (i) to fewer than 350 persons per member state and to no more than 4,000 persons in the EU, excluding qualified investors or other investors that fulfil the conditions described in Article 6(1)(a) and (b) of Regulation (EU) No 345/2013 on European venture capital funds (EuVECA Regulation); or (ii) has a total consideration in the EU below €1,000,000 calculated over a period of 12 months.

2. Discretionary exemption for total consideration (article 3(2)): The Parliament proposes that each member state could decide to exempt offers of securities to the public from the prospectus requirement, if the total consideration of the offer in the EU does not exceed €5 million calculated over a period of 12 months. Offers meeting the set threshold would not benefit from the passporting regime and would be confined to the specific member state. The offers would also need to contain a clear indication that the public offer is not of a cross-border nature and the issuer should not actively solicit investors outside that member state. The Commission had proposed that the relevant total consideration threshold should be ten million euros.

3. Content of the prospectus (article 6): The Parliament has proposed amending the prospectus content requirements to clarify that the information included in a prospectus should be ‘relevant and necessary’ and information should be what ‘an investor would reasonably require in relation to an investment in securities’ to make an informed decision of the issuer and securities. In addition, Parliament has proposed expressly stating that the information required may vary depending on the issuer, the nature of securities and the target investors, amongst other criteria. It would appear that Parliament is trying to ensure that the Prospectus Regulation clearly communicates that a more proportionate approach should be taken by issuers when preparing a prospectus, consistent with one of the overall aims of the new Prospectus Regulation, which is to make the prospectus requirements less onerous for smaller or more simple offers of securities.

4. Prospectus summary (article 7): The Parliament has amended the Commission’s proposals suggesting that a summary of the prospectus should not be required where a prospectus relates to the admission to trading on a regulated market of non-equity securities offered solely to qualified investors. The Parliament has also proposed that under exceptional circumstances the maximum summary length of six pages can be extended to ten pages by the competent authority where the complexity of the issuer’s activities, the nature of the issue or the nature of the securities issued so requires and there is a risk that investors would be misled otherwise.

5. Simplified disclosure regime for secondary issues (article 14 (1)): Under the original Commission proposals, it was proposed that the simplified disclosure regime for secondary issuances would be available to issuers whose securities have been admitted to trading on a regulated market or an SME growth market for at least 18 months and who issue more securities of the same class. The Parliament has proposed that the regime should also be available to issuers whose securities have been admitted to trading on an MTF, other than an SME growth market, where that MTF has disclosure requirements equivalent to those required for SME growth markets under MiFID. It has been proposed that the European Securities and Markets Authority (ESMA) shall be obliged to maintain a list of such MTFs.

6. EU growth prospectuses (article 15): The Parliament has proposed branding a prospectus required under the new minimum disclosure regime proposed in the Commission’s preceding proposals as an “EU growth prospectus”. The Parliament has proposed expanding the availability of the EU growth prospectus regime beyond SMEs to: (i) non-SME issuers concerning securities which are to be admitted to trading on an SME growth market; and (ii) issuers where the offer of securities to the public is of a total consideration in the EU that does not exceed 20,000,000 euros calculated over a period of 12 months. The Commission had originally proposed a requirement for the Commission to produce delegated acts prescribing more specific content requirements for the (now branded) EU growth prospectus. The Parliament has proposed additions to this requirement to ensure that there is a particular focus on ensuring that only relevant information is contained in the EU growth prospectus and on the costs of producing the prospectus.

7. Risk factors (article 16): The Parliament has proposed additional provisions to ensure that the risk factors featured in a prospectus include those arising from the level of subordination of a security and the impact on the expected size or payment timing to holders of the securities in the event of the issuer’s bankruptcy or any other similar procedure. Parliament has also proposed that ESMA produces guidelines to assist competent authorities in their review of risk factors in a manner which encourages appropriate and focused risk factor disclosure by issuers.

8. Approval of the prospectus (article 19 (11 a)): The Parliament has proposed that ESMA shall be required to develop a central workflow system, capturing the prospectus approval process from initiation through to approval, allowing competent authorities, ESMA and issuers to manage and monitor approval requests online across the EU.

On 8 December 2016, informal trialogue agreement was reached on the draft Prospectus Regulation, which will now have to be officially adopted by the European Parliament and the Council of the EU. As that informal agreement has already been reached, it is expected that Parliament will approve the Prospectus Regulation on first reading and that, accordingly, the regulation will be adopted without major delay. The text of the Prospectus Regulation will then be published in the Official Journal of the EU and enter into force. The Prospectus Regulation will be directly applicable in all EU member states approximately 12 months later, repealing the existing Prospectus Directive and associated legislation.


On 11 October 2016, Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), published a statement addressed to the Economic and Monetary Affairs Committee (ECON) of the European Parliament. The statement focused on ESMA’s advice regarding the application of the passport to non-European alternative investment fund managers (AIFMs) and alternative investment funds (AIFs) under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).

Since October 2010 when political agreement was reached on the AIFMD, producing the advice on extending the AIFMD passport to non-EU countries has been considered a high priority by ESMA. It has since been determined that non-EU countries should be assessed individually based on the following criteria: demand for the passport, level of the market access within each of the non-EU countries for EU funds and managers, and each country’s regulatory framework as compared to the AIFMD. Subsequently, a comprehensive assessment methodology was developed based on investor protection, market disruption, competition and the monitoring of systemic risk.

ESMA’s first advice was published in July 2015 regarding the extension of the AIFMD passport to Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the United States. This selection of countries was based on the amount of activity being carried out by managers and funds from these countries under the AIFMD national private placement regimes (NPPRs) of certain EU member states, the existing knowledge and experience of EU national competent authorities with respect to their counterparts in those jurisdictions, and the efforts made by stakeholders from those countries to engage with the assessment process. Guernsey, Jersey and Switzerland were assessed positively (subject to some legislative changes). No definite view was reached for Hong Kong, Singapore and the United States due to competition and regulatory issues and there being a lack of sufficient evidence to carry out a proper assessment of the relevant criteria. ESMA had suggested that the Commission may wish to postpone any decision to trigger the legislative procedures required to extend the AIFMD passport until ESMA was in a position to deliver positive advice in respect of a greater number of non-EU countries in order for the potential market impact of extending the passport to be better calculated.

ESMA was requested to further investigate the effectiveness of enforcement in non-EU jurisdictions and assess the expected inflow of funds into the EU from the relevant non-EU jurisdictions, should the AIFMD passport be extended.

Six additional jurisdictions were included in the second ESMA advice: Australia, Bermuda, Canada, the Cayman Islands, the Isle of Man and Japan. The second advice was published on 18 July 2016, assessing 12 non-EU countries in total. ESMA provided positive advice in respect of Canada, Guernsey, Hong Kong, Japan, Jersey, Singapore and Switzerland. ESMA stated that Australia would need to extend favourable treatment that it currently offers to the UK and Irish AIFMs to all EU member states before Australian AIFMs/AIFs can benefit from an extended passport. With regard to the United States, 

ESMA highlighted that a potential extension of the AIFMD passport to the US risks an un-level playing field between EU and US AIFMs in the case of funds marketed by managers to professional investors which do not involve a public offering. This is because the market access conditions which would apply to US AIFMs in the EU under an AIFMD passport would be different from, and potentially less onerous than, the market access conditions applicable to EU AIFMs operating in the US.

ESMA did not give definite advice on Bermuda and the Cayman Islands regarding investor protection and effectiveness of enforcement since both countries are currently in the process of implementing new regulatory regimes. In the case of the Isle of Man, due to the lack of a similar regime, it was not possible for ESMA to assess whether the investor protection criterion is met.

In the statement, Mr Maijoor stated that ESMA’s short term focus lies with:

■ its ongoing assessment of Bermuda and the Cayman Islands and intention to reach a definitive conclusion on the extension of the passport to these countries;

■ its assessment of an additional group of non-EU countries when more clarity on the next steps as envisaged by the co-legislators is provided; and

■ establishing a framework in case the passport is extended to one or more non-EU countries, including preparing for ESMA’s role in the functioning of the passporting system and in strengthened supervisory cooperation.


On 9 November 2016, the European Commission (Commission) published a press release proposing a one-year extension of the date of application of the Regulation on Key Information Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (Regulation 1286/2014) (PRIIPs Regulation). A legislative proposal for a Regulation amending the PRIIPs Regulation with regard to the date of its application has been published by the Commission.

The current implementation deadline is 31 December 2016 and the Commission proposed that the new implementation date is amended to 1 January 2018.


The PRIIPs Regulation is aimed at improving the quality of information provided to consumers. It provides for a standardised factsheet, known as a KID, which presents the main features of an investment product in a simple and accessible manner.

The three European Supervisory Authorities (ESAs), i.e. the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, had jointly submitted the draft regulatory technical standards (RTS) on the content of the KID required under PRIIPs to the Commission on 6 April 2016. The draft RTS were endorsed by the Commission and no objections were raised by the Council of the EU. However, the European Parliament subsequently rejected them on 14 September 2016. The purpose of the RTS is to ensure standardisation of KIDs so that they are easily comparable by consumers leading to greater transparency and harmonisation, and creating a level playing field among different products and distribution channels.

Extension of the application date

The European Parliament and a large majority of member states called for the date on which PRIIPs Regulation will become effective to be postponed until 1 January 2018 to allow time for the RTS to be adopted beforehand. The Commission believes that the PRIIPs Regulation is sufficiently clear for it to be adequately applied without the RTS, but its objectives could be better served by having the RTS on KIDs in place.

Valdis Dombrovskis, European Commissioner for the Euro and Social Dialogue and Vice-President of the Commission, stated that the one year extension will be in the interest of a smoother implementation for European consumers and will help ensure legal certainty. He added, however, that the extension should be restricted to one year only. 

Letter from the Commission to the ESAs

On 10 November 2016, Mr Olivier Guersent, Director General of the Commission, wrote a letter to the ESAs regarding the amendments that the Commission intends to make to the draft RTS that were rejected by the European Parliament. ESMA published that letter on 11 November 2016. The modifications requested by the European Parliament on 14 September 2016, including the multi-option PRIIPs, the fourth performance scenario and the comprehension alert, are referred to in the letter. The ESAs are requested to submit an opinion on amending the RTS based on the Commission’s proposed amendments within six weeks. Subsequently, the Commission will need to adopt the RTS and they will then be subject to further scrutiny by the Parliament and the Council of the EU.

The ESAs are also requested to develop guidance in line with the relevant provisions of the RTS regarding multioption products, performance scenarios, comprehension alert and the presentation of insurance-related costs. The Commission expects the revised PRIIPs framework to be in place during the first half of 2017 and applicable as of 1 January 2018.


On 14 November 2016, the European Securities and Markets Authority (ESMA) issued its final report (Report) on the amended application for the clearing obligation for financial counterparties with a volume of activity under European Market Infrastructure Regulation (Regulation 648/2012) (EMIR).

ESMA Consultation of July 2016

Under EMIR, ESMA is required to develop draft regulatory technical standards (RTS) each of which, once adopted by the European Commission, declare certain classes of derivatives as subject to the EMIR clearing obligation from various prescribed dates. In July 2016, ESMA published a consultation paper, in which it proposed to extend the phase-in period for the clearing obligation to counterparties in Category 3, i.e. the financial counterparties with the smallest transaction volume. The consultation was launched in recognition of the difficulties that the smallest financial counterparties are facing in establishing the necessary clearing arrangements under EMIR, the finalisation of some relevant regulatory requirements and the limited impact in terms of systemic risk that these counterparties represent. More information on the ESMA consultation can be found in the September 2016 edition of “Exchange – International”.

ESMA final report

The final report incorporated the feedback received to the consultation. The respondents to the consultation referred to the impediments that counterparties with a limited volume of activity encounter when attempting to access central clearing arrangements and highlighted the factors limiting the offer of client clearing services by clearing members. Many of the respondents mentioned that the leverage ratio framework under Basel III and Capital Requirements Regulation is the main reason why banks are not incentivised to provide client clearing services. Stakeholders have also identified the regulatory framework for indirect client clearing as a hurdle for smaller counterparties to obtain access to central clearing.

The issues that the clients have to face in establishing clearing arrangements, include counterparties’ readiness, the hurdles in the establishment of client clearing arrangements, the unclear outlook, collateral issues, clearing members’ capacity issues and the direct access model. The inconsistency between client clearing documentation and Article 50(g)(iii) of the UCITS Directive was also brought up by respondents. Although Article 50 requires the fund to be able to close out the derivative position at any time at its own initiative, this might be challenging for the fund with a cleared derivative position, depending on the terms of the agreement the fund negotiates with its clearing member

The respondents stated that the fixed costs of clearing are disproportionately high for counterparties with low volume of activity and that counterparties with a limited volume of activity generally face a lack of commitment from clearing members. The respondents said that it becomes challenging for low volume counterparties to finalise the arrangements with clearing members under equally satisfactory terms, as the latter tend to prioritise clients with a higher volume of activity.

Since its July consultation, ESMA has slightly changed its proposals regarding the amendment of the clearing obligation’s effective dates prescribed by the three Delegated Regulations. The newly proposed date for all three implementation dates across the three Delegated Regulations will be 21 June 2019 for Category 3 counterparties, whereas in the consultation it was proposed that there would be different implementation dates across the Delegated Regulations.

ESMA considers that although the delayed phase-in does not solve the problems discussed regarding access to central clearing arrangements, it should reduce their impacts and provide time to address them properly.

Some of the respondents stated that delaying the application of the clearing obligation for Category 3, could lead to inconsistency in the resulting compliance calendar for the various counterparties. Indicatively, if the delay is accepted, the deadline for counterparties in Category 3 would come later than the deadline for those in Category 4, i.e. non-financial counterparties above the clearing threshold. ESMA clarified that since the categories of counterparties were defined, new evidence suggests that the level of sophistication of non-financial counterparties above the clearing threshold (NFC+) may be higher than that of many small financial counterparties. As a result, ESMA considers it appropriate that the group NFC+ should start clearing a few months before the group of financial counterparts with a limited volume of activity.

Next Steps

ESMA’s final report was submitted to the European Commission for endorsement of the draft RTS as set out in Annex 3 to the final report. The Commission is expected to decide whether or not the draft RTS should be endorsed within three months from the date of the report’s submission.