Prospectus regime after Brexit

At 11pm (UK time) on 31 December 2020 (known as "IP completion day), the transition period ended and the UK entered into a new trading relationship with the EU under the EU-UK Trade and Cooperation Agreement ("TCA"). The TCA came into force on 1 May 2021.

Although the TCA represents a fundamental shift in the EU-UK relationship, it does not deal with the UK listing, transparency and prospectus regime. The UK has, therefore, implemented the changes it proposed if there was a no deal exit. The changes took effect from IP completion day.

Set out below are the main changes as at 1 January 2021. Other changes have been made since that date, for example to allow  a new short-form prospectus (see New EU Recovery Prospectus for secondary offerings). The UK government is also consulting on proposals for a review of the UK prospectus regime (see HMT Outcome of UK Prospectus Review).

Prospectus regime - UK implementation

With effect from IP completion day, the UK has its own prospectus regime, distinct from the EU regime. The new UK prospectus regime largely preserves the structure set by the EU Prospectus Regulation, but with some important modifications to reflect the UK's withdrawal from the EU.

From IP completion day, the EU Prospectus Regulation was "onshored" into the UK  and became part of a new body of retained EU law. During this process, the EU Prospectus Regulation (and other relevant EU and domestic legislation) was amendedto reflect the UK's new position outside of the EU - in most cases, by bringing the treatment of the EU into line with the current treatment of other non-EU countries. Amendments were also made to ensure the continued effective functioning of the UK prospectus regime from IP completion day.

The relevant changes were made primarily through:

• The Official Listing of Securities etc (EU Exit) Regulations 2019
• The Prospectus (EU Exit) Regulations 2019 and
• The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020.

As of IP completion day, the UK Prospectus Regulation continues to substantively mirror the EU Prospectus Regulation, although greater divergence between the two regimes may occur in the future.

The Prospectus Regulation Rules have also been amended to take account of the UK's withdrawal from the EU and to reflect the new status of the amended EU Prospectus Regulation as 'retained EU law' from IP completion day.

ESMA guidance, recommendations and Q&A will not be "retained EU Law" in the UK after IP completion day. The FCA has stated, however, that it expects issuers to continue to apply these materials to the extent that they remain relevant. Market participants will need to interpret the materials sensibly and in light of the Brexit-related amendments to UK law.

Key changes made to the UK prospectus regime

• Scope of regime:  from IP completion day, the UK's primary markets regime applies to all issuers that (i) have securities admitted to trading on a regulated market in the UK or admitted to listing in the UK or (ii) are making a public offer in the UK. This will apply regardless of the country in which the issuer was incorporated. As such, certain issuers will have to make disclosures or do things according to the FCA's rules where they previously only followed their home competent authority's rules. 

• Approval and validity of prospectuses: the new UK prospectus regime is entirely domestic. As such, EEA issuers wanting to issue securities in the UK will be required to secure approval of their prospectus from the FCA, even if the prospectus has already been approved by the national regulator of an EEA State. As a transitional measure, however, a valid prospectus passported into the UK pre-IP completion day will continue to be valid for use in the UK up to the end of its normal period of validity -- i.e. 12 months from the date it was originally approved. Any supplement to a passported prospectus must still, however, be approved by the FCA after IP completion day.

In contrast, any prospectus approved by the UK FCA prior to 31 December 2020 will cease to be valid for offers or admission in the EEA after that date. Issuers will, therefore, need a separate, independent prospectus approval by another EEA competent authority before being able to make a public offer in EEA jurisdictions or admit securities to trading on an EEA regulated market.

• Home Member State: as a third country, the UK can no longer be a "home member state" for the purposes of the EU prospectus regime. Any third country issuer (including issuers from the UK) who previously had the UK as their home member state, will have to choose a new home member state if they wish to offer securities or be admitted to trading in the EU after IP completion day.  ESMA (in its Q&A on the Prospectus Regulation) has confirmed how this choice should be made and that the choice should only be made once and will then be definitive.

• Accounting equivalence: for financial years beginning after IP completion day, UK issuers are required to use UK-adopted international accounting standards (or if those are not applicable, UK accounting standards) when presenting their historical financial information in a prospectus. Non-UK issuers must use one of the following:

• UK-adopted international accounting standards

• EU-adopted IFRS

  -the GAAP of Japan, the USA, the PRC, Canada or the Republic of Korea or the accounting standards of other countries where an equivalence decision has been made.

  As a practical matter, UK-adopted IAS will initially be identical to EU-adopted IFRS, but there will inevitably be some divergence in the future.  HM Treasury has issued an equivalence Direction in relation to EU- IFRS but the EU has yet to issue any such indication concerning the equivalence of UK-IAS.

• Transfer of functions: functions under the EU Prospectus Regulation that were exercised by the European Commission will now be carried out by HM Treasury (including making delegated acts and equivalence decisions) and those functions carried out by ESMA will be transferred to the FCA.

• Incorporation by reference: issuers are no longer permitted to incorporate by reference into a prospectus information contained in documents (including other prospectuses) that have previously been approved by the national regulator of an EEA State. However, as a transitional measure, information that has already been approved by an EEA State regulator before IP completion day can continue to be incorporated by reference into a prospectus for use in the UK going forward. The FCA will still need to give approval for such a prospectus.

• Exemptions from prospectus requirement: All offer and admission exemptions under the UK prospectus regime now only take into account offers or admissions that have been made in the UK and not across the EU. For example, the Eur8 million optional exemption in relation to the total consideration for transferable securities offered, will now only apply to securities offered in the UK (and not across the EU as used to be the case.)