U.K. Prospectus Regime Review

Background

Further to the consultations that were initiated by the Chancellor in July 2021 concerning the proposed reform of the U.K.’s prospectus regime, the HM Treasury has published its response on 1 March 2022. These consultations followed Lord Hill’s recommendations regarding the U.K. listing regime in the U.K. For more information on the listing review, please see our article.

The proposed changes to the current prospectus regime are aimed at simplifying regulation in this area in order to make capital raising more agile and effective, to help facilitate wider participation in the ownership of public companies, and to improve the quality of information that investors receive. These changes are intended to provide the Financial Conduct Authority (FCA) with enhanced rule-making authority and responsibilities in relation to the publication of a prospectus and, in particular, to enable it to determine if and when a prospectus is required, as well as content and timing of the publication (if required).

Proposed Changes

Changes to prospectus requirement for admission to trade on a U.K. regulated market

The proposed new regime will not change the default requirement of a prospectus needing to be published for admission to trading on a U.K. regulated market such as the Main Market of the London Stock Exchange. The proposed change is for the FCA to have enhanced authority and responsibilities (in relation to admission) to be able to determine:

• if a prospectus is required in a particular instance; and
• if it is required;
  • what content is required in the prospectus; and
  • the timing for the prospectus document.

This means that, in certain cases, a company may only need to provide specific content in their prospectus or may not need to produce one at all.

In addition to this, the proposed changes will include that it is no longer a criminal offence to request admission to trade on a U.K. regulated market without first having published an approved prospectus.

Changes to prospectus requirement for public offerings of securities

In the case of public offerings of securities, the requirement to publish a prospectus will effectively be removed, meaning that under the proposed changes, the default position will be that a prospectus will no longer be required when securities are offered to the public in the U.K. The exception to this new default position will be if there is a concurrent admission to trade on a U.K. regulated market requiring a prospectus.

At present, existing exemptions from the requirement to produce a prospectus in relation to public offerings[1] exist which will continue under the proposed changes. However, the new proposed changes will include further new exemptions (which are still to be specified) in relation to:

1. public offerings where the securities are or will be admitted to a U.K. regulated market or other specific multilateral trading facilities (e.g., the AIM market of the London Stock Exchange);
2. public offerings of a companies’ own securities to existing shareholders pro rata (i.e., rights issues);
3. public offerings of securities by unlisted companies conducted through a platform that is operated by a firm that is authorised for that specific purpose (see this expanded upon below); and
4. particular public offerings made by overseas issuers (see this expanded upon below).

Prospectus liability changes

Under the current regime, persons responsible for preparing a prospectus have “statutory liability” in relation to untrue or misleading statements or omissions of required matters (this is known as the ‘necessary information test’). The proposed changes to the current regime seek to overhaul this liability by the following:

• Retaining the necessary information test but reforming this test to:
  • specifically clarify that necessary information may vary depending upon whether an offer is for first-time admission to a market or whether it is a secondary issuance;
  • remove the reference to denomination of the security as a factor permitting different levels of disclosure for retail and wholesale bond prospectuses; and
  • change the focus of the necessary information test for debt securities to being in relation to an issuer’s or guarantor’s creditworthiness instead of its prospects.
• Raising the threshold test for liability from a ‘negligence standard’ to a ‘recklessness standard’ for certain categories of forwardlooking information in a prospectus. This is meant to align with the standard applicable in relation to other types of published information a company may deal with such as announcements and annual reports, with the FCA to specify the categories of forward-looking information.
• If an admission document is published in accordance with the rules of certain multilateral trading facilities, they will be brought within the statutory liability regime, including the aforementioned changes to the threshold test for forwardlooking information.

Changes to public offerings by unlisted companies

While there is no requirement for unlisted companies making public offerings under €8 million to adhere to the prospectus regime, the issue is that the market for unlisted companies making public offerings above €8 million was largely not functioning and this change is proposed to address that issue. The proposal is to remove any requirement for unlisted companies to require a prospectus for public offerings. Instead, any unlisted companies will be able to offer securities to the public through any platform that is operated by a firm (that is specifically authorised for that purpose).

In practice, however, this proposal for ‘platform offerings’ will only be available to unlisted companies that are registered as private limited companies.

Changes to public offerings by overseas issuers

While it is still to be specified, this proposal involves introducing a new regime that will allow public offerings of securities that are listed on overseas stock exchanges to be extended into the U.K. (the caveat being that the offering documents will need to be prepared according to the rules of the relevant overseas jurisdiction). The FCA will also be empowered to essentially step in at any time as a part of a general mandate to protect U.K. investors.

When Will These Proposed Changes Be Introduced?

There is currently no set timeline for the introduction of these proposed changes, and the U.K. government has only tentatively stated that these changes will be introduced through the requisite legislation which will happen on a parliamentary timescale.

Armstrong Teasdale’s Thoughts

Nick Heap, Partner in the U.K. Capital Markets team, comments: “The FCA will need to play a bit of a balancing act here as to how it proceeds with these reforms. On the one hand the proposed reforms represent a significant and welcome reduction in the burden placed on some companies (particularly unlisted and smaller cap ones) needing to produce a prospectus. On the other, if there will effectively be no requirement for U.K. PLCs to produce a prospectus for follow-on offerings, then this could go against one of the FCA’s main stated aims of improving the quality of information available to prospective investors and also the general requirement that sufficient information is available for them to make an informed decision about their proposed investment. It will be interesting, therefore, to see where the FCA lands on this and how the final reforms are decided”.

How Armstrong Teasdale Can Help

Our Capital Markets team is experienced in advising clients on the requirements for preparing a prospectus 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 members of our Capital Markets team.

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.