UK Implementation of Amendments to the Prospectus Directive, Contributed by Adrian Brown and Sam Robinson, Nabarro LLP
The Prospectus Directive1 was implemented in the UK in 20052 and, in summary, outlines the circumstances in which a prospectus is required in relation to public offers of securities and admissions of securities on a regulated market. Where such a prospectus is required, the Prospectus Directive also outlines the format and content of that prospectus. Similar to other European directives, a prospectus that complies with the requirements in the Directive can be “passported” into other countries within the European Economic Area (EEA).
The Prospectus Directive contained a clause that required the European Commission to review and assess the application of the legislation once it had been in force for five years. In this respect, the Commission has undertaken this review and concluded that although the overall effect of the Prospectus Directive has been positive, some improvements could be made.3
As a result of the Commission’s review, certain amendments to the prospectus regime under this legislation are outlined in an amending Directive,4 (PD Amending Directive) which must be implemented in EEA Member States by 1 July 2012. This article outlines the UK’s implementation of these amendments.
While this article focuses on amendments being made to the Prospectus Directive, the PD Amending Directive is also making certain amendments to the Transparency Directive.5
Amendments Already Implemented in the UK
Following the financial crisis, the UK Government published a consultation document entitled “Financing a Private Sector Recovery.”6 This considered the impact of the financial crisis on finance for businesses and whether there are any future risks which should be addressed in the short term. One of the points raised in feedback related to the relatively high cost involved in producing a prospectus under the Prospectus Directive, with an estimate that this amounted to between 7 and 12 percent of the funds raised where the total of the offer was below £10 million.
Taking this into account, the Government stated its intentions to introduce the following two amendments to the Prospectus Directive earlier than required by the PD Amending Directive.7
|Where a prospectus is not required under the Prospectus Directive||Amendments under the PD Amending Directive|
|Number of persons to whom an offer can be made or directed at (other than qualified investors)||Increases from fewer than 100 to 150 persons|
|Total consideration of an offer||Increases from less than €2.5 million to less than €5 million|
These amendments widen the scope of two of the existing exemptions and thereby increase the circumstances where a prospectus would not be required under the Prospectus Directive.8 The Government believes that these amendments will reduce the administrative burden on issuers and be particularly beneficial for smaller companies.
The consultation paper includes a number of interesting statistics. For example, having reviewed the number of public offers on the London Stock Exchange and AIM that required a prospectus under the Prospectus Directive from 2000 to 2010, the Government believes that 256 of these would not now require a prospectus following the amendment to the total consideration exemption. In the Government’s estimation, this also equates to a saving in the region of £9 million to £15 million.
Other Amendments Being Made by the PD Amending Directive
The other amendments to the Prospectus Directive, which have yet to be implemented in the UK, include:
- Increasing the exemption for non-equity securities issued in a continuous or repeated manner by credit institutions where the total consideration for the offer in the EU is less than €75 million (previously this was €50 million);
- Amending the definition of a “qualified investor” so that it now reflects the definition of a professional client in Directive 2004/39/EC (MiFID);
- Removing the requirement for issuers whose securities are listed on a regulated market to produce an annual disclosure document outlining all the information that they have published over the preceding 12 months;
- Clarifying that where there has been an offer of securities to the public and a prospectus supplement is produced, investors that have already agreed to purchase or subscribe for the securities may only withdraw where the new factor, mistake or inaccuracy referred to in the supplement has arisen prior to the final closing of the offer and the delivery of the securities;
- Clarifying the position relating to “retail cascades” and that the original prospectus would be sufficient where the person responsible for the prospectus consents to its use in a written agreement; and
- Confirming that where securities are guaranteed by an EEA Member State, information relating to that Member State does not need to be included in the prospectus.
The Commission has also requested advice from ESMA on a number of points, including the format of the prospectus and the summary in the prospectus. ESMA has consulted in relation to this request and, at the time of writing, is expected to provide shortly its advice to the Commission.
The Government and the FSA are currently working towards implementing these further amendments by the deadline of 1 July 2012. The FSA is planning to publish a consultation paper before the end of the year. In this respect, once ESMA produces its advice to the Commission and the FSA begins its consultation process we will have more detail and firms will be in a better position to determine the practical changes that will result from the PD Amending Directive.
Adrian Brown is a partner and head of the financial services regulatory practice at Nabarro LLP. He advises investment banks, broker dealers, fund managers and corporate finance houses on all aspects of financial services regulation. Telephone: +44 (0) 20 7524 6400; E-mail: firstname.lastname@example.org.
Sam Robinson is a senior associate in the financial services regulatory practice at Nabarro LLP. Sam has advised a number of clients including banks, stockbrokers, fund managers and investment advisers on all aspects of financial services regulation. Prior to working in private practice Sam worked for seven years at the FSA, the majority of that time in the FSA’s General Counsel’s Division. Telephone: +44 (0) 20 7524 6836; E-mail: email@example.com.
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