UK: Offering Securities Into The United Kingdom

Last Updated: 13 February 2012
Article by Jonathan Deverill

With companies these days exploring an increasingly broad range of options when it comes to funding, London continues to be a popular target for corporate road-shows and calls to potential investors alike. Fortunately, from an English legal perspective, marketing to institutional investors in the United Kingdom from overseas should normally be pretty straightforward.

Will the company need a UK prospectus?

Not normally. A UK prospectus is only required for (i) offers of transferable securities to be admitted to trading on certain UK stock markets, including the UK's flagship "Official List" but not AIM, and (ii) offers of transferable securities "to the public" in the United Kingdom. In each case there are various exemptions. Where the company concerned is not listed or becoming listed in the United Kingdom at all, only the "offer to the public" head is relevant; and there is an exemption from the need for a UK prospectus where the offer is made in the United Kingdom only to (i) "qualified investors", defined to cover most institutional investors, and/or (ii) fewer than 150 persons, not including any "qualified investors" to whom the offer is made.

Care needs to be taken when marketing to a fund manager or stockbroker acting for clients on a non-discretionary basis, since the legislation requires a look-through to the underlying clients who, of course, could be numerous and are unlikely themselves to be "qualified investors".

What about the UK's "financial promotions" regime?

This regime regulates the communication in or into the United Kingdom, in the course of business, of any invitation or inducement to engage in a variety of activities relating to investments, including buying, selling, subscribing for or underwriting securities as principal or agent. The definition of "financial promotion" is very broad and is taken to include, amongst other things, phone calls to potential investors, road-show presentations and presentation slides, "pathfinder" and formal prospectuses (under foreign law) and subscription agreements and placing letters. Whilst compliance with the regime is achieved where a person duly authorised by the UK Financial Services Authority (see further below) (i) makes the communication, or (ii) approves the content of the communication, in practice in most cases like this the company offering the securities and its advisors will seek to bring themselves within the scope of one of the many exemptions.

Prominent among these are the exemptions for "investment professionals" and "high net worth companies, unincorporated associations, etc" contained, respectively, in paragraphs 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (FPO). Whilst there are detailed criteria for each exemption, most marketing to institutional investors in the United Kingdom in cases like this is done in reliance on them. Other potentially useful exemptions include those for promotions to members and creditors of certain bodies corporate (FPO paragraph 43) or relating to the sale of a body corporate (FPO paragraph 62).

Whilst the FPO does contain certain exemptions for promotions to high net worth individuals – see in particular FPO paragraphs 48, 50 and 50A – in our experience these are quite restrictive compared with our understanding of certain "accredited investor", and similar, regimes in other jurisdictions. A particular feature is the need to establish at the very outset, before any communication of marketing or other promotional materials, that the individual concerned does indeed fall within the relevant exemption. If this is not done, and the necessary paperwork exchanged at the beginning of the process, there is a real risk of non-compliance, which unfortunately cannot be cured by obtaining the requisite documentation and confirmations at the time of signature of an investment agreement.

What about the UK Financial Services Authority (FSA)?

Under the United Kingdom's regulatory regime, a person may only offer securities in the UK if either they have an authorisation to do so from the FSA or an exemption applies. However, most companies benefit from broad exemptions when offering their own shares. Furthermore, investment banks and other broking firms offering securities into the United Kingdom as agent for their own corporate client will also be exempted where both:

  1. the transaction is entered into in compliance with the UK's "financial promotions" regime, mentioned above; and
  2. such investment bank or other broking firm does not offer the relevant securities into the United Kingdom, or offer to do so, from a permanent place of business maintained by them in the United Kingdom.

Accordingly, unless a UK prospectus is required, an offering by an overseas company into the United Kingdom - either as principal or through an investment bank or other broking firm based outside the UK - should not normally entail dialogue with the FSA.

What about liability?

There are both civil and criminal consequences of (i) failure to comply with the regimes relating to UK prospectuses and financial promotions, and (ii) carrying on regulated financial services activity in the United Kingdom without the appropriate authorisation from the FSA. In particular, subject to the court's discretion an agreement made following a breach of the financial promotions regime or by a person lacking the requisite FSA authorisation is unenforceable against the innocent party, who is entitled to compensation and the return of money or other property transferred by them.

Where a UK investor subscribes based on inaccurate or misleading information, they may be able to rely on one or more English law remedies in addition to any other redress which may be available to them. (A detailed description of those remedies, and other possible heads of criminal liability, is beyond the scope of this note.)


XYZ Corporation is incorporated in the British Virgin Islands. Its shares are listed on the Toronto Stock Exchange and it does not currently have any shareholders in the United Kingdom. The company is undertaking a brokered private placement, seeking to raise C$20 million. The broker - which has no offices in Europe - suggests contacting a half a dozen pension funds, asset managers and insurance companies based in London by phone on behalf of the company, to see if they would be interested in participating in the private placement.

There should not be any particular issues for XYZ Corporation or its broker from an English regulatory perspective. Neither the company nor its broker will be contacting the prospective investors from within the United Kingdom, so there is no need to worry about having (or not having) an authorisation from the FSA. The institutions should all be "qualified investors", so no UK prospectus would be needed. Furthermore, all such institutions should also be exempt, as "investment professionals", for the purposes of the FPO. Confirmatory warranties could be added to any subscription agreement, and suitable selling restrictions added to marketing documentation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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