On Sunday, 21 July 2019, the Prospectus Regulation (Regulation EU/2017/1129, the "Prospectus Regulation") entered into force, replacing the prospectus directive as implemented within the EU. Therefore, we have set out the main characteristics of the regulation in this publication.
The Prospectus Regulation harmonizes requirements for the drafting, approval, and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market in an EU Member State. The prospectus regime is designed to reinforce investor protection by ensuring that all prospectuses, wherever issued in the EU, provide clear and comprehensive information while at the same time making it easier for companies to raise capital throughout the EU on the basis of approval from a single competent authority.
The use of a regulation, which is directly applicable without requiring national law, should reduce the possibility of divergent measures being taken at national level and should ensure a consistent approach and greater legal certainty. The use of a regulation must also strengthen confidence in the transparency of markets across the EU and reduce regulatory complexity as well as search and compliance costs for companies. Harmonizing the information disclosure requirements would furthermore allow for the establishment of a cross-border passport mechanism, which facilitates the effective functioning of the internal market in a wide variety of securities. In addition, the Prospectus Regulation is part of the EU Capital Markets Union action plan, which is part of an EU initiative which aims to deepen and further integrate the capital markets of the 28 EU member states.
Overview of the changes
As said, the Prospectus Regulation replaces the prospectus directive that is implemented within the EU. This direct EU applicability is the main change to the known prospectus (directive) regime. Other significant changes to the prospectus regime are:
- the rules with regard to the prospectus summary, which, under the Prospectus Regulation, may only cover a maximum length of 7 pages and should be written in a language that is clear, non-technical, concise and comprehensible for investors;
- the description of the presentation of the exact risk factors in the prospectus - these risk factors must be limited to risks specific to the issuer and/or to the securities and which are material for taking an informed investment decision;
- the introduction of a simplified disclosure regime for issuers already listed on a regulated market or SME growth market (continuously for at least 18 months) with regard to a secondary issuance;
- the introduction of a passportable EU growth prospectus that will be available to SMEs, certain mid-sized companies admitted to a SME growth market and other non-listed issuers where the offer of securities to the public is for a total consideration of less than EUR 20 million per year. The EU growth prospectus allows the aforementioned issuers, when meeting certain requirements, to make use of a simplified document of a standardized format as set out in the delegated acts; and
- the possibility for frequent issuers of drawing up a universal registration document (URD) every financial year which will lead, with consecutive filings with the national regulator, to the benefit of filing the URDs without the need of prior approval from the national regulator. The URD may also be used to form the basis of a prospectus, that will consequently (and under certain conditions) be approved within five working days.
In addition, the Prospectus Regulation and the delegated and implementing acts set out the details with regard to the specific information, such as the risk factors and summary, to be included in the prospectus and format in which it should be provided.
Notable consequences from a Dutch perspective
From a Dutch perspective, we point out two notable consequences of the Prospectus Regulation:
- Although already in force since July 2018, it is notable that the Netherlands decided to exempt issuers from the obligation to publish a prospectus for offerings of securities with a total consideration in the EU of less than EUR 5 million - this threshold is lower than the EUR 8 million maximum threshold possible under the Prospectus Regulation. For offers below EUR 5 million, the issuer in the Netherlands must: (i) notify the Dutch Authority for the Financial Markets (the AFM) of the offering of securities to the public; and (ii) complete an information document in the form required under Dutch law, submit the completed form to the AFM and make the information document available to investors.
- Furthermore, the Dutch supervisors will have more supervisory and investigatory powers to fulfill their supervisory duties. The AFM may now, for example, prohibit or suspend the offer of securities to the public or admission to trading on a regulated market or advertisements where there are reasonable grounds for suspecting that the Prospectus Regulation is infringed. The AFM may also disclose all material information that may influence the assessment of securities being offered to the public or admitted to trading on a regulated market, either directly or indirectly by obliging the issuer to do so through a designation.
While views may differ on the usefulness of prospectuses as a tool for retail clients' investment decisions and it remains to be seen how the market will react to these new rules, the Prospectus Regulation does introduce a new Prospectus Regime that can benefit both investors and issuers.
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.