Investors told to expect big changes to UK prospectus regime

It comes after ministers said they would adopt many of the recommendations of the review of the listing regime conducted by Lord Hill, including a move to delegate the detailed rulemaking on prospectus requirements and content to the Financial Conduct Authority (FCA).

A prospectus is a document containing detailed financial information about a public company, inviting potential investors to buy its securities. While current rules mean all prospectuses automatically require FCA approval before they are published, the reforms would give the regulator broad discretion to decide whether individual prospectuses require approval.

Alasdair Weir, equity capital markets expert at Pinsent Masons, said: “These changes are part of a package of measures being proposed to reform the UK listing regime - which is seen by many to have become too burdensome and slow. In its review, the government pledged to legislate for the proposed changes ‘when parliamentary time allows’. But the Treasury will be keen to do so quickly as the prospectus reforms relate to amendments to retained EU legislation, and Lord Hill’s recommendations were published more than a year ago.”

“These are, however, fundamental reforms and will take time to enact. Because legislative amendments are largely required to remove detailed content requirements from law and to add additional exemptions, the heavier lifting will fall to the FCA as it changes its rules. While that happens, it will be business-as-usual for investors - but there are big changes on the horizon,” Weir added.

The Treasury also plans to disentangle the regulation of admitting securities to trading from how public offers of securities are made. New exemptions for public offers will include offers of securities already admitted to regulated markets and offers of securities to those who already hold securities in the issuer. A public offer exemption will also be included for junior markets, known as multi-lateral trading facilities – including AIM.

James Kaye, equity capital markets expert at Pinsent Masons, said: “It seems likely that these changes will make secondary offerings by listed companies far quicker and prospectuses less common in those offerings. The public offer exemption for junior markets will make it simpler to offer shares in AIM-listed companies to the public because a prospectus would not necessarily be required for secondary offerings. These changes should also see listed companies benefitting from cost reductions in the fund-raising process.”

Kaye said: “These amendments are intended to encourage businesses to include forecast financial information in a prospectus by reducing the risk of liability directors’ face if those forecasts are not met. Instead, a new liability standard based on dishonesty or recklessness, rather than negligence or due care, will be established.”.

The proposed reforms will also make it easier for unlisted public companies to offer their securities to the public through the use of a new regulated, electronic platform similar to crowdfunding platforms which already exist. The current €8 million threshold exemption for a public offering of securities will also be removed.

Weir said: “Ministers hope these changes will help make the London markets more agile and dynamic, attracting fast-growing companies to list their securities here. The next step is for the FCA to consult on the changes to the regulatory regime and the government to bring forward legislation.”