Brexit: the implications for equity capital markets

Brexit’s impact on offers of equity securities in the UK will depend both on the terms of the exit and the extent to which the UK Government and the Financial Conduct Authority (FCA) maintain the current regime. The London Stock Exchange’s Main Market is a leading international securities market and the UK Government will want that to continue, which could mean that the UK will continue with rules that remain consistent with EU legislation and requirements. (See Brexit: the legal implications for the possible alternatives to EU membership.)

The UK’s current listing and prospectus regimes include rules and legislation which implement EU legislation, such as the Prospectus Directive, the Transparency Directive and the Market Abuse Directive. Given that the EU legislation has, in some areas, followed UK legislation and that some of the UK rules are wider in scope than the EU rules, we think it is likely that the UK Government and the FCA will, at least initially, decide to retain the current regimes so that they continue to be harmonised with those in the EU. Even if the UK were to retain the current regimes, it might not be required to follow future EU amendments with the result that the rules could diverge at a future date.

Areas which could be affected include:

When a prospectus is required

A company incorporated in an EU member state has to prepare a prospectus to offer shares to the public and/or to have shares admitted to trading in the EU, subject to certain exemptions. Following a Brexit, the UK could be free to amend its legislation - for example, these exemptions could be widened to allow more offers to the public in the UK without the need for a prospectus.

References in legislation to the "EU" would cease to apply to the UK (although it would potentially remain within the European Economic Area), which would affect the application of the exemptions to individual companies.

Prospectus content

The Prospectus Directive sets out certain minimum content requirements for a prospectus and has strict rules about the summary which has to be included in it. If a Brexit occurred, it is likely that, over time, the prospectus content regime would start to diverge from the regime in the EU.

Passporting

The Prospectus Directive allows a company to offer shares throughout the EU using a prospectus which has been approved in only one member state (this transferability is known as "passporting"). If passporting were to cease, UK companies might have to have their prospectuses approved both in the UK and in other member states and might have to comply with different approval and content requirements, which could make it more time consuming and costly to offer shares in other member states. Similarly, the UK would have to decide whether to continue to allow prospectuses to be “passported” into the UK and other EU member states would need to decide whether to amend the passporting regime to allow passporting to the UK.

For further information on a Brexit, please refer to Brexit: the legal implications.