The New Prospectus Regulation – a single regime to improve access to capital markets

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In May of this year the Council for the EU announced that it had adopted a proposed new prospectus regulation which aims to reduce the administrative burden on issuers when raising capital and diversify the sources of capital available for businesses, so that they ultimately become less reliant on bank funding (the New Prospectus Regulation).

The New Prospectus Regulation repeals and replaces the Prospectus Directive (2003/71/EC) and the existing Prospectus Regulation (809/2004) and is part of the Commission’s initiative to establish a Capital Markets Union. The New Prospectus Regulation came into force on 20 July 2017.

Some of the key changes to the old regime that the New Prospectus Regulation introduces include the following:

  • offers of securities to the public with a total consideration in the EU of less than €1 million will fall outside the New Prospectus Regulation and there will be no requirement to publish a prospectus. This is increased from €100,000 under the old regime
  • the threshold at which a prospectus is mandatory for offers to the public will be raised from €5 million to €8 million (in total over a period of 12 months). Member states can decide to exempt offers below this threshold from the requirement to issue a prospectus
  • issuers with securities admitted to a regulated market may issue capital, over a period of 12 months, representing up to 20% of the same class of security without publishing a prospectus. This is an extension of the old exemption under which issuers can issue capital representing less than 10% of a class already listed
  • the admission to trading on a regulated market of shares resulting from the conversion or exchange of other securities (e.g. convertible bonds) are exempt from the requirement to publish a prospectus, provided that the resulting shares represent, over a period of 12 months, less than 20% of the number of shares of the same class already admitted to trading on the same regulated market (historically there was no limit)
  • the rules governing the structure of the summary at the front of the prospectus are relaxed under the New Prospectus Regulation. Issuers will no longer be required to complete summary tables containing “elements”
  • issuers who frequently publish prospectuses may benefit from an accelerated approval process with the competent authority (i.e. the Financial Conduct Authority in the UK) by preparing a universal registration document every financial year (which must be approved by the competent authority in the first two years) describing the company’s organisation, business, financial position, earnings and prospects, governance and shareholding structure.

Although the majority of the provisions in the New Prospectus Regulation come into force on 20 July 2019, two of the above provisions will apply immediately. They are:

  • the exemption to the requirement for a prospectus, in the context of an admission to trading, which allows issuers to issue capital which represents up to 20% of a class already admitted to trading over a 12-month period; and
  • the new cap on the exemption to the requirement for a prospectus regarding the admission to trading of shares resulting from conversion or exchange of other securities (e.g. convertible bonds) or from the exercise of rights conferred by other securities.

WM Comment

In the UK, the ability to issue further securities without a prospectus will result in lower costs and expenses when raising equity (companies may still need to publish a circular to shareholders depending on what authorities are in place to issue further shares, but such a circular will be a much shorter document that can be pulled together quickly).

Until exit negotiations run their course, the UK remains a full member of the EU and must continue to apply EU legislation. It is not yet clear to what extent EU legislation will continue to apply in the UK post-EU membership. It is likely that EU regulations and legislation will effectively be frozen into UK law by the Repeal Bill, continuing to apply until such time that the UK decides to amend, repeal or retain them. Given the vast body of legislation involved, those decisions could take a significant amount of time.