The Prospectus Directive1 was implemented in the UK in 20052 and, in summary, outlines the circumstances in which a prospectus is required in relation to public offers of securities and admissions of securities on a regulated market. Where such a prospectus is required, the Prospectus Directive also outlines the format and content of that prospectus. Similar to other European directives, a prospectus that complies with the requirements in the Directive can be “passported” into other countries within the European Economic Area (EEA).
The Prospectus Directive contained a clause that required the European Commission to review and assess the application of the legislation once it had been in force for five years. In this respect, the Commission has undertaken this review and concluded that although the overall effect of the Prospectus Directive has been positive, some improvements could be made.3
As a result of the Commission’s review, certain amendments to the prospectus regime under this legislation are outlined in an amending Directive,4 (PD Amending Directive) which must be implemented in EEA Member States by 1 July 2012. This article outlines the UK’s implementation of these amendments.
While this article focuses on amendments being made to the Prospectus Directive, the PD Amending Directive is also making certain amendments to the Transparency Directive.5
AMENDMENTS ALREADY IMPLEMENTED IN THE UK
Following the financial crisis, the UK Government published a consultation document entitled “Financing a Private Sector Recovery.”6 This considered the impact of the financial crisis on finance for businesses and whether there are any future risks which should be addressed in the short term. One of the points raised in feedback related to the relatively high cost involved in producing a prospectus under the Prospectus Directive, with an estimate that this amounted to between 7 and 12 percent of the funds raised where the total of the offer was below £10 million.
Taking this into account, the Government stated its intentions to introduce the following two amendments to the Prospectus Directive earlier than required by the PD Amending Directive.7
|Where a prospectus is not required under the Prospectus Directive||Amendments under the PD Amending Directive|
|Number of persons to whom an offer can be made or directed at (other than qualified investors)||Increases from fewer than 100 to 150 persons|
|Total consideration of an offer||Increases from less than €2.5 million to less than €5 million|
These amendments widen the scope of two of the existing exemptions and thereby increase the circumstances where a prospectus would not be required under the Prospectus Directive.8 The Government believes that these amendments will reduce the administrative burden on issuers and be particularly beneficial for smaller companies.
The consultation paper includes a number of interesting statistics. For example, having reviewed the number of public offers on the London Stock Exchange and AIM that required a prospectus under the Prospectus Directive from 2000 to 2010, the Government believes that 256 of these would not now require a prospectus following the amendment to the total consideration exemption. In the Government’s estimation, this also equates to a saving in the region of £9 million to £15 million.
OTHER AMENDMENTS BEING MADE BY THE PD AMENDING DIRECTIVE
The other amendments to the Prospectus Directive, which have yet to be implemented in the UK, include:
The Commission has also requested advice from ESMA on a number of points, including the format of the prospectus and the summary in the prospectus. ESMA has consulted in relation to this request and, at the time of writing, is expected to provide shortly its advice to the Commission.
The Government and the FSA are currently working towards implementing these further amendments by the deadline of 1 July 2012. The FSA is planning to publish a consultation paper before the end of the year. In this respect, once ESMA produces its advice to the Commission and the FSA begins its consultation process we will have more detail and firms will be in a better position to determine the practical changes that will result from the PD Amending Directive.
Adrian Brown is a partner and head of the financial services regulatory practice at Nabarro LLP. He advises investment banks, broker dealers, fund managers and corporate finance houses on all aspects of financial services regulation. Telephone: +44 (0) 20 7524 6400; E-mail: email@example.com.
Sam Robinson is a senior associate in the financial services regulatory practice at Nabarro LLP. Sam has advised a number of clients including banks, stockbrokers, fund managers and investment advisers on all aspects of financial services regulation. Prior to working in private practice Sam worked for seven years at the FSA, the majority of that time in the FSA’s General Counsel’s Division. Telephone: +44 (0) 20 7524 6836; E-mail: firstname.lastname@example.org.
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).