UK prospectus regime review

background

Following the consultations launched by the Chancellor in July 2021 regarding the proposed reform of the UK prospectus regime, the UK Treasury published its response on 1 March 2022. These consultations followed Lord Hill’s recommendations regarding the UK listing regime in the UK For more information on the listing review, see our article.

The proposed changes to the current prospectus regime aim to simplify regulation in this area to make raising capital more flexible and effective, facilitate broader ownership of public companies and improve the quality of information investors receive. These changes are intended to be submitted to the Financial Conduct Authority (FCA) with extended legislative powers and duties in relation to the publication of a prospectus and in particular to enable it to determine if and when a prospectus is required and the content and timing of publication (if required).

Proposed Changes

Changes to the prospectus requirement for admission to trading on a regulated market in the UK

The proposed new rule does not change the standard requirement for a prospectus to be published in order to be admitted to trading on a UK regulated market such as the Main Market of the London Stock Exchange. The proposed amendment provides the FCA with increased powers and responsibilities (in relation to authorisation) to determine:

• if a prospectus is required in individual cases; and
• if it is necessary;
  • what content is required in the prospectus; and
  • the timing of the prospectus document.

This means that in certain cases a company may only need to provide certain content in its prospectus or not create one at all.

In addition, the proposed changes mean that it will no longer be an offense to apply for admission to trading on a regulated market in the UK without first having published an approved prospectus.

Changes to the prospectus requirement for public offerings of securities

In the case of offers of securities to the public, the requirement to publish a prospectus is effectively removed, meaning that under the proposed changes a prospectus will by default not be required where securities are offered to the public in the UK The exception to this new default position is where at the same time a Admission to trading on a regulated market in the United Kingdom, which requires a prospectus.

Currently existing exceptions to the prospectus requirement for public offerings[1] exist, which will continue under the proposed changes. However, the new proposed changes will include further new exceptions (to be specified) related to:

1. public offerings in which the securities are or will be admitted to trading on a regulated market in the UK or other specific multilateral trading facility (e.g. the AIM market of the London Stock Exchange);
2. public offerings of company-owned securities to existing shareholders (ie, rights issues);
3. public offerings of securities by unlisted companies conducted through a platform operated by a firm licensed for that specific purpose (see below); and
4. certain public offerings by foreign issuers (see below).

Changes in Prospectus Liability

Under the current regime, persons responsible for preparing a prospectus are subject to “legal liability” in relation to untrue or misleading information or omissions of required information (this is known as a “required information test”). The proposed changes to the current regime aim to revise this liability as follows:

• Retaining the required information test, but reforming this test to:
  • expressly clarify that the information required may vary depending on whether an offer is a first admission to a market or a secondary offering;
  • remove the reference to the denomination of the security as a factor allowing different levels of disclosure for retail and wholesale bond prospectuses; and
  • change the focus of the required information test for debt securities on the creditworthiness of an issuer or guarantor rather than on its prospects.
• Raising the threshold test for liability from a “negligence standard” to a “recklessness standard” for certain categories of forward-looking information in a prospectus. This is intended to align with the standard that applies in relation to other types of published information that a company may deal with, such as B. Announcements and Annual Reports, with the FCA specifying the categories of forward-looking information.
• When an admission document is issued under the rules of certain multilateral trading facilities, they are subject to the legal liability regime, including the changes to the Forward-Looking Information Threshold Test noted above.

Changes to public offerings by unlisted companies

While unlisted companies making public offerings below €8 million are not required to comply with the prospectus regime, the problem is that the market for unlisted companies making public offerings above €8 million is largely non-functional has, and this change is proposed to counteract the issue. The proposal is to remove any requirement for unlisted companies to require a prospectus for public offerings. Instead, unlisted companies can offer securities to the public through any platform operated by a firm (specifically authorized for the purpose).

In practice, however, this proposal for “platform offerings” will only be available to non-listed companies incorporated as limited liability companies.

Changes in public offerings by foreign issuers

This proposal, while still requiring further clarification, involves the introduction of a new rule allowing public offerings of securities listed on foreign stock exchanges to be extended to the UK (with the proviso that the offering document must be drawn up in accordance with the rules of the respective foreign jurisdiction). The FCA will also have the power to intervene at essentially any time under a general mandate to protect UK investors.

When will these proposed changes be implemented?

There is currently no set timetable for the introduction of these proposed changes and the UK Government has only tentatively stated that these changes will be introduced through the necessary legislation, which will come within a parliamentary timeframe.

Armstrong Teasdale’s Thoughts

Nick Heap, Partner in the UK Capital Markets team, comments: “The FCA will need a little balancing act here in how they go about these reforms. On the one hand, the proposed reforms represent a significant and welcome reduction in the burden placed on some companies (particularly unlisted companies and companies with smaller market capitalisations) who have to prepare a prospectus. On the other hand, if there is no longer an obligation for UK PLCs to prepare a prospectus for subsequent offerings, this could run counter to one of the FCA’s stated primary objectives of improving the quality of information available to potential investors and also the requirement that sufficient information is available to enable them to make an informed decision about their proposed investment. It will therefore be interesting to see where FCA ends up with this and how the final reforms are decided.”

How Armstrong Teasdale can help

Our capital markets team is experienced in advising clients on the requirements for preparing a prospectus in relation to UK capital markets transactions. If you would also like to discuss these proposed changes or require further advice, please contact a member of our Capital Markets team.

Disclaimer: This publication is provided by Armstrong Teasdale Limited for informational purposes only. The information contained in this publication should not be construed as legal advice. If you have any questions or would like further information on any of the matters discussed in this publication, please contact Armstrong Teasdale’s UK Capital Markets team.