Important Reforms to be made to the UK’s Prospectus Regime

15 Mar 2022

The Government is taking forward important reforms to the UK’s regime for the public issuance of securities and admission to trading on capital markets. These are set out in the Prospectus Regime Review Outcome, published on 1 March 2022. The Government will replace the regime currently contained in the UK Prospectus Regulation and will legislate to do so “when parliamentary time allows”.

The review was set up to help boost the UK as a destination for initial public offerings (IPOs) and optimise the capital raising process for large and small companies on UK markets, taking advantage of our new freedoms in financial services following our withdrawal from the EU.

These changes will simplify prospectus regulation and make it more agile and effective, as well as facilitating wider participation in the ownership of public companies and improving the quality of information investors receive.

These changes will separate the regulation of public offers of securities from the regulation of admissions of securities to trading. The government will delegate a greater degree of responsibility to the Financial Conduct Authority (FCA) to implement the detail of the new regime through its rules.

Prospectuses for admissions of securities

The government intends to give the FCA enhanced rule-making responsibilities regarding admissions of securities to trading on UK Regulated Markets. Enhanced responsibilities will allow the FCA to specify if, and when, a prospectus is required, including for a further issuance by an existing listed issuer. The FCA will also be able to make rules determining what a prospectus should contain where required and address the manner and timing of publication. Its enhanced responsibilities will give the FCA enough flexibility to determine whether to require a UK prospectus for a secondary listing or whether to rely on an overseas prospectus.

In connection with this, the Government will remove the criminal offence which currently prohibits requesting admission to trading on a UK Regulated Market without first having published an FCA-approved prospectus. Furthermore, the reformed regime will give the FCA the discretion to decide whether – and, if so, in which circumstances – prospectuses must be reviewed and approved by it prior to publication.

Public offers of securities

Prospectuses will no longer be a feature of the public offerings regime but there will be a general prohibition on public offerings of securities against which there will be exemptions. The list of exemptions (currently set out in Article 1(4) of the existing UK Prospectus Regulation – exemptions that will be retained include the 'Qualified Investors' and '150 persons' exemptions, and an exemption for director/employee offers) will be expanded to cover:
  • offerings of securities which are, or will be, admitted to UK Regulated Markets: as a result, issuers will need to comply with one set of rules only for prospectus publication. In practice, this exemption should make it easier for retail investors to participate in an undocumented equity placing by a listed company;
  • offerings of securities to those who already hold equity securities in the offering company, subject to certain conditions, including that the offer is made pro-rata to a person's existing holding: therefore, pre-emptive share offerings (such as rights issues and open offers) will only need a prospectus if required by the FCA’s new rules that will apply when securities are admitted to trading on a regulated market;
  • public offers of securities by private (i.e. unlisted) companies: the government intends to remove the current requirement for an FCA-approved prospectus on offers over €8million in size to be published. Instead, securities will be allowed to be offered to the public provided it is made through a platform operated by a firm specifically authorised for the purpose. In connection with this, the government intends to create a new regulated activity covering the operation of an electronic platform for the public offering of securities, such as an equity crowdfunding platform. It will then be for the FCA to determine the detailed requirements that such platforms will be subject to, including the levels of due diligence and disclosure with which issuers will need to comply;
  • junior markets: the Government intends to add to the list of exemptions offers of securities, which are or will be admitted to trading on certain multilateral trading facilities (MTF(s)), such as the AIM market operated by the London Stock Exchange and the Aquis Growth Market. While MTF operators will remain responsible for determining the content requirements for admission documents subject to FCA rules and oversight, the government intends to develop a mechanism that treats admission documents as a type of prospectus for regulatory purposes; and
  • public offerings from overseas: the Government intends to develop a new regime of regulatory deference for offers into the UK of securities listed on certain designated overseas stock markets. This will permit offerings to be extended into the UK on the basis of offering documents prepared according to the rules of the relevant overseas jurisdiction and market. It will not feature FCA review and approval of the offering documentation and will instead place reliance on an assessment of overall effectiveness of the regulation of the overseas market in question. There will be appropriate powers for the FCA to intervene to protect UK investors in exceptional circumstances.

Technical changes

Certain technical changes will be made, including in relation to offers of wholesale non-equity securities to the statutory ‘necessary information’ test, which provides the overarching disclosure standard for the content of prospectuses in the UK and to the threshold for liability that applies to certain categories of forward-looking information in prospectuses. 

DMH Stallard’s Corporate Team advises companies, financial advisers and brokers on the legal aspects of UK Capital Markets, including flotations, fundraisings and transactions. Should you have any queries regarding any of the matters set out in this blog, then please get in touch with your usual contact at DMH Stallard LLP or Giedre Doig by email or by phone on 020 7842 2374.

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