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New Prospectus Regulation introduced to enhance protection for investors and make SME funding more accessible

Thursday, 24 August 2017

What is the Prospectus Regulation, when does it apply from and how?

The Prospectus Regulation 2017/1129/EU (the “Prospectus Regulation”) is a new set of European Union (”EU”) rules relating to prospectuses.  A prospectus is a document required to be published by a company in certain circumstances where it is offering transferable securities to the public in the EU or where it is admitting transferable securities to trading on an EU regulated market.  

The Prospectus Regulation was published in the Official Journal of the European Union on 30 June 2017.  It is hoped the new regime will give more protection to investors whilst, at the same time, making funding more accessible for small and medium sized enterprises (“SMEs”).  The EU has introduced these changes in response to concerns raised by market participants that it was too difficult under the previous prospectus regime for SMEs in the EU to access the capital markets, placing them at a competitive disadvantage and making them too reliant on bank finance.  Reforming the EU regime on prospectuses is also one of the building blocks of the European Commission’s plan to establish a capital markets union. 

The Prospectus Regulation came into force on 20 July 2017.  A few of its provisions apply from 20 July 2017 and a further few provisions will apply from 21 July 2018.  The full scope of the Prospectus Regulation is due to apply from 21 July 2019, at which point the entirety of the existing EU Prospectus Directive 2003/71/EC will be repealed.

The Prospectus Regulation has direct effect across the EU, i.e. Ireland does not have to enact any implementing legislation, and the same rules will apply to all EU countries in the hope of having a consistent approach across the EU.  

What are the key changes under the Prospectus Regulation?

FROM 20 JULY 2017:

Secondary Issuances on Regulated Markets

 
A prospectus is not needed for further issuances of security on an EU regulated market where the admission to trading represents, over a 12 month period, less than 20% (previously less than 10%) of the same class of securities already admitted to trading on that market.  This increase means larger secondary fundraisings can be carried out (up to the 20% threshold) without triggering the requirement to publish a prospectus.

Conversion/Exchange of Securities on Regulated Markets

 
A prospectus is not required on the admission of shares to trading on an EU regulated market resulting from the conversion or exchange of other securities, so long as those shares represent, over a 12 month period, less than 20% of the shares of the same class already admitted to trading on the same market.
 

FROM 21 JULY 2018:

Smaller Capital Raisings Exempt

 
The exemption threshold for offers of securities to the public across the EU over a 12 month period will be increased from €500,000 to €1,000,000.  The exemption threshold for domestic offers of securities to the public where the total consideration over a 12 month period is less than €5,000,000 may be increased to up to €8,000,000, at the option of the individual Member State.
 

FROM 21 JULY 2019:

“EU Growth” Regime

 
A standard and less onerous regime for SMEs on growth markets such as AIM or ESM, and other issuers seeking to raise smaller amounts of money, i.e. up to €20,000,000 over a 12 month period, will be available.  “EU Growth” prospectuses will require reduced content and will be in a standardised form.  SMEs that have securities trading on a regulated market will note be able to avail of the “EU Growth" regime.

Universal Registration Document

 
A new universal registration document (“URD”) which operates as a shelf registration document, similar to an SEC “shelf registration”, will be introduced.  The URD should describe the company’s organisation, business, financial position, earnings and prospects, governance and shareholding structure. This means issuers can file an annual URD even where the intention is not to immediately offer or list securities.  Following two consecutive approvals of a URD by the competent authority of the relevant Member State, subsequent URDs can be filed without prior approval.

Prospectus/Summary Content

 
Prospectuses will have a shorter summary however more prescriptive information will be required in a prospectus to enable potential investors to make an informed assessment of assets, liabilities, profits, losses and rights attached to the potential investment.  Risk factors will have to be categorised according to their materiality, requiring both an analysis of the likelihood of the occurrence of the risk and quantification of the expected magnitude of the negative impact of such risk.  The prospectus should not contain any more than 15 risk factors.

Prospectus Search

 
The European Securities and Markets Authority will provide easier access to EU approved prospectuses via a free online search function.  Paper prospectuses will only be required where they have been requested by an investor.

For more information or general advice on what the new Prospectus Regulation might mean for you and your business, please contact Gerry Beausang, Head of ByrneWallace Capital Markets or any member of the ByrneWallace Capital Markets team.


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