The new Prospectus Regulation (Regulation (EU) 2017/1129) came into full effect across the EU on 21st July 2019; it first came into force on 30th June 2017, with some provisions having been applicable since 20th July 2017 and others from 21st July 2018. The previous Prospectus Directive has now thus ceased to have effect.
The Regulation is hailed as a substantial accomplishment in the EU’s Capital Markets Union reform agenda and it is intended to streamline the current regime of the publishing of prospectuses, while facilitating the access to capital funding and harmonising the approval regime across the EU Member States.
The new regime will not apply retroactively and thus securities which were previously compliant under the Prospectus Directive, or base prospectuses before the coming into force of the Regulation will be grandfathered into the new regime.
Key Features of the Regulation
Below are some of the salient features of the Prospectus Regulation:
In the case of an offer of securities to the public with a total consideration in the EU of less than €1 million no prospectus needs to be registered. This was one of the early adopted provisions of the Regulation and became applicable on 21st July 2018.
Individual Member States were also allowed to set a national threshold up to a maximum of €8 million, below which a prospectus is not required. The applicable threshold in Malta is of €5 million.
The content requirements have been revised to make the prospectus summary more useful to investors. The summary must now not exceed a maximum of 7 sides of an A4-sized paper. The summary must include the following four sections: (1) the introduction (including any potential warnings); (2) key information on the issuer/s; (3) key information on the securities; and (4) key information on the offer of securities to the public and/or admission to trading. All information provided must be in clear, non-technical language.
The number of risk factors that can be included in the summary has been limited to 15. The risk factors must be specific to both the issuer and the guarantor (where applicable). The factors identified must relate to the issuer and the securities at hand. Any generic statements which are not particularly relevant to the issuer in question are thus to be avoided. The list of specific risks must be categorised according to the nature of the risk, with the most material risk being presented first. When coupled with ESMA’s Guidelines on Risk Factors issued earlier this year, national competent authorities are expected to adopt a more rigorous approach when reviewing these risk factors.
Universal Registration Document
Companies which intend to frequently offer securities to the public can now take advantage of the Universal Registration Document. Issuers listed on a regulated market or multilateral trading facility (MTF) will be allowed to file an annual Universal Registration Document which, in turn, is to be approved by the competent authorities; this document can even be filed in instances where issuers do not immediately intend to offer or list securities to the public.
Once an issuer has had such a document approved for two consecutive years, it will no longer require prior approval for the filing of any subsequent Universal Registration Documents. Issuers will then be able to benefit from a fast-tracked approval process.
EU Growth Prospectus
Qualifying issuers will have the option to compile a prospectus under a standardised format, also known as the EU Growth Prospectus, when offering their securities to the public. These new rules will apply to: SMEs; other issuers traded on an SME growth market with an average market capitalisation of less than €500 million for the prior three years; and issuers whose EU offer does not exceed €20 million over 12 months, provided that such issuer is not traded on an MTF and had up to an average of 499 employees during the previous year.
This new form of prospectus will allow such companies to focus on information that is material to them and will impose less onerous requirements on them when drawing up a prospectus.
Simplified Prospectus for Secondary Issuances
Issuers who have had, for a minimum period of at least 18 months, securities admitted to trading on a regulated market or on an SME growth market, will be able to benefit from a simplified disclosure regime. This will include a summary, a specific registration document, and a specific securities note containing reduced disclosure requirements. The simplified prospectus requires only one year of historical financial information in addition to a working capital statement.
This simplified procedure is intended to minimise the cost of capital and, in turn, to reduce the information required in a manner which is proportionate and relevant to secondary issuances.
ESMA’s Consultation Paper
The European Securities and Markets Authority (ESMA) has also recently published a consultation paper concerning the draft Guidelines on disclosure requirements under the new Prospectus Regulation.
The proposed guidelines aim to ensure a uniform understanding of the relevant disclosure requirements and, to assist national competent authorities when assessing the completeness, comprehensibility and consistency of the information contained in the prospectus.
The draft Guidelines cover topics such as:
- Historical financial information
- Interim financial information
- Profit forecasts and estimates
- Working capital statements; and
- Capitalisation and indebtedness.
In order to enhance comparability with other financial information, the draft Guidelines clarify the content of the indebtedness statement. New guidance on working capital statements is also provided to clarify how offerings should be considered when determining if an issuer can provide a clean working capital statement.
ESMA has also updated its Q&As in relation to the Prospectus Regulation in order to promote a common supervisory approach and practice in applying prospectus supervision.
Article by Dr Cherise Abela Grech and Ms Emma-Marie Sammut.
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.