On 18 May 2023, the Financial Conduct Authority (FCA) published four engagement papers on its new framework for making public offers and admissions to trading on U.K. public markets. These papers outline a regime that will ultimately replace the current U.K. prospectus framework, as envisaged under the Government's Edinburgh Reforms. The papers are seeking early engagement from market participants on the proposed changes.

Background

In July 2021, the Government commissioned a review of the U.K. listing regime. HM Treasury published a response on 1 March 2022 deciding that the U.K. listing regime contained in the U.K. Prospectus Regulation needed to be reviewed and amended (as detailed in our article from April 2022).

The Government continued working toward implementing the proposed changes arising from the various recommendations, which are to be enacted under the Financial Services and Markets Bill (FSM Bill), which was introduced into Parliament in July 2022. The revised version of the FSM Bill has now passed the Parliamentary process and received Royal Assent on 29 June 2023. In conjunction with the FSM Bill’s progress through Parliament, HM Treasury published a draft statutory instrument (Draft SI) in December 2022 detailing the new prospectus regime and FCA’s power to administer this regime (more detail in our article from February 2023).

In the lead-up to the FSM Bill passing through the House of Lords, the FCA has now published engagement papers to set out its thinking on how it will exercise its new powers in a number of key policy areas under the new regime.

The Engagement Papers

The first set of engagement papers cover the following four policy areas:

• Admission to trading on a regulated market
• Further issuances of equity on regulated markets
• Protected forward-looking statements
• Non-equity securities

Engagement Paper on Admission to Trading on a Regulated Market

This paper focuses on prospectus requirements for companies seeking to admit their securities to trading on a U.K. regulated market, such as the Main Market of the London Stock Exchange. The FCA does not propose to make any significant changes to the current regime in this area, with prospectuses continuing to be a requirement for such admissions. The current prospectus exemptions would be retained, as well as the format and content requirements for admission to trading (including the requirement for a prospectus to contain all “necessary information”) while exploring opportunities for improvements in certain areas.

Engagement Paper on Further Issuances of Equity on Regulated Markets

Under the new regime, once a company becomes listed, the FCA will be able to tailor its approach to further issuances of securities more directly to the needs of issuers and investors. As such, they are looking to reduce the requirements substantially for a prospectus for further issuances. The FCA will have discretion to decide whether to require a prospectus to be published and to interpret what “necessary information” the prospectus needs to contain. The FCA will have to set a threshold for requiring a prospectus and consider what documents should be required if a prospectus is not required.

Engagement Paper on Protected Forward-Looking Statements

The FCA proposes to create a new concept of protected forward-looking statements with a view to encouraging companies to include forward-looking statements in prospectuses. As part of this, for certain categories of forward-looking information that are included in a prospectus, a different liability threshold is to be established. This would be based on fraud and recklessness, essentially aligning it with the liability standard for other categories of information published by issuers. The FCA will have the power to specify which categories of forward-looking information the new liability threshold will apply to. For false, misleading or omitted information, the existing negligence-based threshold will be retained.

Engagement Paper on Non-Equity Securities

In this engagement paper the FCA focuses on proposals relating to debt securities and explores whether the current regime broadly works well in the context of wholesale, debt capital markets. The FCA does not propose significant changes, however, it considers the following topics:

• how debt programmes can be made more efficient, for example, by allowing future financial information to be incorporated by reference without the need for a supplementary prospectus;
• facilitating broader access to listed debt;
• structured finance and investment products, for example, specific prospectus disclosure for certain structured financial products and revisiting the eligibility rules;
• secondary issuances of debt;
• green, social or sustainably labelled debt instruments, for example, requiring additional disclosure obligations for ESG-labelled debt; and
• the professional securities market.

When Will the Proposed Changes be Implemented?

The Draft SI is being published for illustrative purposes only. As such, it will continue to develop before final legislation is introduced following formal adoption of the FSM Bill. Due to the complex and technical nature of the reforms, the consultation process envisaged by the FCA for these purposes is lengthier, with early engagement on its proposals being sought. Following this feedback, a formal consultation is expected to be launched in the first half of 2024. The complete range of reforms will only take effect after the FCA has consulted on, and potentially implemented, rules under its expanded responsibilities. As matters stand now, it is not expected that the new regime will be in place before 2025.

Our Capital Markets team is experienced in advising clients on listing requirements in the context of U.K. capital markets transactions. If you would also like to discuss these proposed changes or need any further guidance, please contact one of the authors listed, or your regular AT lawyer.

Disclaimer: This publication is provided by Armstrong Teasdale Limited for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to Armstrong Teasdale’s U.K. Capital Markets team.