The bulk of the new EU Prospectus Regulation 2017/1129 (the Regulation) took effect on 21 July 2019. The key aims of the Regulation are to modernise the EU prospectus regime to facilitate the raising of capital by businesses and to ensure the alignment of format, content and process across member states.
Implementation of the Regulation
Although the Regulation came into force in July 2017, only a limited number of provisions applied from that date (see The new EU Prospectus Regulation: immediate benefits for equity issuers).
Subject to grandfathering provisions for Prospectus Directive-compliant prospectuses approved before 21 July 2019, the Regulation has now replaced the Prospectus Directive. Any issuer seeking approval of a prospectus on or after 21 July 2019 must do so under the Regulation.
The Regulation has direct effect in the UK (and all other member states). Where necessary, UK domestic legislation has been updated to ensure consistency with the Regulation. The FCA has also updated its Handbook.
Much of the detail required by the Regulation is set out in two Commission Delegated Regulations on regulatory technical standards (EU) 2019/979 and the format, content, scrutiny and approval of prospectuses (EU) 2019/980.
The Regulation does not change the triggers for the requirement to publish a prospectus, namely:
- an offer of transferable securities to the public; or
- an admission of transferable securities to trading on a regulated market.
Key changes from 21 July 2019
Compared with the Prospectus Directive, the changes introduced by the Regulation are evolutionary rather than revolutionary. Key changes include the following:
The prospectus summary
New content requirements aim to make the prospectus summary more useful to investors. The maximum permitted length of a summary has reduced to seven sides of A4, meaning that issuers must keep them concise. The number of risk factors permitted in the summary is limited to 15. A summary must include four sections: the introduction, key information on the issuer, key information on the securities and key information on the offer/admission. Although there are prescribed contents for each, issuers now have more discretion over the information that they include.
There is a more prescriptive regime for risk factors. Risk factors are limited to those that are specific to the issuer or the securities or both, and are material for taking an informed investment decision. Risk factors must be presented in a limited number of categories with the most material risk factor in each section being presented first. Materiality is assessed on the probability of a risk occurring and the expected extent of its negative impact.
A simplified disclosure regime for secondary issues
This replaces the existing proportionate disclosure regime for rights issues. It is available to any issuer already admitted to trading for at least 18 months on an EU-regulated market or an SME growth market. An eligible issuer may use a simplified prospectus consisting of a summary, a specific registration document and a specific securities note containing reduced disclosure requirements. A simplified prospectus requires only one year of historical financial information, in addition to a working capital statement.
A growth prospectus
This is a simplified, proportionate disclosure regime. It is available to SMEs, mid-sized companies with securities traded on an SME growth market and other non-listed issuers that make small issues (not more than €20 million over a 12-month period) and meet certain other conditions.
Universal registration document
This gives frequent issuers with securities admitted to trading on a regulated market or multilateral trading facility (such as AIM) the ability to file an annual generic document containing the registration document element for future prospectuses. Filing a universal registration document will give an issuer "frequent issuer status", which may allow it to benefit from an accelerated prospectus approval process.
If the UK leaves the EU on 31 October 2019 in a "no-deal" scenario, the Regulation will form part of the UK's retained EU law. This means that it would continue to apply in the UK as in force at that date, subject to those changes necessary to correct any deficiencies in its operation resulting from the UK's withdrawal from the EU.
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