Changes to the UK prospectus and public offers regime

Summary

As part of the package of financial services reforms announced on 9 December 2022 (the Edinburgh reforms), HM Treasury has published illustrative secondary legislation to show how the UK government will make its proposed changes to the UK prospectus and public offers regime. This will implement the majority of the changes that the government announced in March 2022 in the outcome of its consultation on the UK prospectus regime. The changes are intended to make the regime simpler, more agile and more effective and to facilitate wider participation in the ownership of public companies. At the heart of the reforms is the principle that the regulatory regimes relating to public offers of securities and admissions of securities to trading on a regulated market should be dealt with separately, as recommended by the Hill Review of post-Brexit financial services legislation. The Financial Conduct Authority (“FCA”) will also have an enhanced role in regulation.

Approach to reform 

HM Treasury (“HMT”) has published an illustrative statutory instrument, the Financial Services and Markets Act 2000 (Public Offers and Admissions to Trading) Regulations 2023 (Regulations), to implement changes to the UK prospectus and public offers regime. As noted in the HM Treasury Policy Statement  setting out the approach to the repeal of financial services retained EU law, these changes form part of the first tranche of EU financial services legislation to be reviewed. 

The illustrative SI sets out how the government will, when the existing UK Prospectus Regulation is repealed, deliver changes to the existing prospectus and public offers regime using the powers set out in the Financial Services and Markets Bill that is currently progressing through Parliament. The Regulations are not in final form, and will continue to develop. Consistent with the government’s earlier consultation response, it will implement certain fundamental changes to the current UK prospectus regime, including the following:

• A new public offer architecture – including a general prohibition on public offers of securities. When a company wants to make an offer of securities to the public within the scope of the Regulations, they must fall within an exemption from this general prohibition. The principal exemptions will apply to offers where securities are admitted to trading on UK markets or offered by means of regulated platforms. Other exemptions (commented on further below – see Exemptions) will be based on those currently provided under the UK Prospectus Regulation in relation to offers to the public.
• Admissions to trading on regulated markets – the concept of a prospectus will be retained as an important part of the regulation of public offers of securities admitted to trading on regulated markets and the FCA will be given enhanced rulemaking responsibilities regarding the admission of securities to trading on UK regulated markets. This will include the ability to determine when a prospectus is required, its contents and the manner and timing of its validation and publication. 
• Admissions to trading on markets such as AIM – admission documents for multilateral trading facilities operating as primary markets, such as AIM, will be treated as a prospectus (meaning the same statutory compensation regime will apply). The operators of such exchanges will still establish admission criteria and rules for the relevant exchange, subject to FCA rules and oversight. HMT has indicated that this regulation is likely to be further refined in order to maintain, as far as possible, the existing regulatory model that such markets operate under.
• Forward-looking information – given that this type of information was identified as being particularly important and useful for investors when making investment decisions by Lord Hill, the liability threshold that applies to certain categories of forward-looking information in prospectuses will be amended to a standard based on fraud and recklessness for certain categories of forward-looking information.
• Offers of securities not admitted to trading – the right of companies to offer securities to the public without admitting them to a stock market will be retained. To make it easier for such companies to raise capital (whilst at the same time maintain investor protection), the government will: 
  • remove the current requirement for an FCA-approved prospectus to be published for offers over €8 million in size; and
  • create a route to allow companies with securities not admitted to trading to make offers via a ‘public offer platform’ where an exemption from the prohibition on public offers is not available and the total value of the offer exceeds a threshold yet to be determined. 
• Enhanced scope of the public offer regime – the scope of the regime will be expanded to include certain non-transferable securities (including ‘minibonds’).Alongside these reforms, the government will legislate separately to create a new regulated activity covering the operation of a public offer platform, such as a securities-based crowdfunding platform. The detailed requirements governing such platforms will be set by the FCA. The government continues to consider its approach in this regard. 

In terms of the general requirements for a prospectus, the Regulations replicate and adapt the “necessary information test” currently contained in Article 6 of the UK Prospectus Regulation. An issuer’s prospects should be understood to include “creditworthiness” where appropriate. HMT have flagged this as another provision which is likely to be refined. 

Exemptions

Certain offers will be exempted from the general prohibition on offers to the public. These generally draw on the exemptions currently in Article 1(4) of the UK Prospectus Regulation, but some of these exemptions are expanded in scope. The exemptions will include: 

• offers for securities denominated in amounts over £50,000 (reduced from EUR 100,000 currently);
• offers to existing holders of equity securities. The exemptions relate to offers of shares to existing shareholders to be substituted for shares in the same class, where there is no increase in share capital, and offers of dividends paid out in the form of shares;
• a new form of own-shareholder exemption that applies where the offer is not made in conjunction with an admission of securities to trading, for example to allow rights issues by non-traded companies;
• offers made in connection with takeovers involving the offer of securities that are not admitted to trading;
• offers of securities to directors or employees (based on the current exemption); and
• a new exemption which will apply to offers of loan notes in the context of takeover transactions.

Next steps

Given the greater powers to be delegated to the FCA, the full suite of reforms will only take effect once the FCA has consulted on and implemented the new rules under its expanded responsibilities.

Comment

The government’s approach to reform of the UK prospectus regime involves delegating significant rule-making powers and discretion to the FCA with respect to how it regulates UK capital markets, public offers of securities and the requirements for a prospectus and its contents going forward, in an effort to encourage greater participation in the ownership of UK public companies and to render the UK regulatory regime more flexible and agile in adapting to the opportunities presented by the advance of technology and the more ‘global’ outlook of the UK post-Brexit.The relaxation on the crowd funding rules, although the full detail has not yet been made available, will also be welcomed by high growth private companies. The FCA will need to balance the government’s desire to encourage retail participation in, and the integration of technology solutions into, the UK equity fundraising process with the need for proportionate and effective regulation and maintenance of adequate investor protections.

Further reading

HM Treasury Policy Note – Public Offers and Admissions to Trading Regime

Government press release