Prospectus regime reform: FCA proposes radical change

Quick on the heels of the finalisation of the new UK Listing Rules (UKLR), the UK Financial Conduct Authority (FCA) has published a consultation paper (CP24/12) on the prospectus regime which is possibly the most eye-catching of all UK listing regime reforms to date.

Whereas the UKLRs significantly reduced the regulatory burden for London-listed issuers, the proposals for prospectus reform really do take the breaks off and, if implemented in the suggested form, will dramatically reduce the occasions when an issuer will need to publish an FCA-approved prospectus outside of an IPO on the Official list.

Focussing on equity prospectuses, we look below at the significant changes to when a prospectus is needed, the new disclosure requirements where a prospectus is required, and the other proposed reforms to the regime. We look at the changes for companies applying for admission, or whose shares are already admitted, to the LSE’s Main Market and AIM.

Comments on the proposals are due to be provided to the FCA by 18 October 2024. The FCA aims to finalise the rules by the end of H1 2025. The final rules will be called the Prospectus Rules: Admission to Trading on a Regulated Market (PRM) and will replace the existing Prospectus Regulation Rules in the FCA Handbook.

Key takeaways

The key proposed reforms for issuers with shares admitted, or to be admitted, to a regulated market (e.g., the London Stock Exchange’s Main Market) are as follows:

• the maintenance of the requirement for an FCA-approved prospectus on an IPO on a regulated market;

• following IPO, a requirement for a prospectus if issuing 75 per cent. or more of an issuer’s issued share capital in a 12-month period (increased from the current 20 per cent. threshold);

• a more flexible complex financial history regime, allowing issuers more choice in disclosing financial information of acquired assets, with guidance provided by the FCA in a Technical Note;

• clarification of what and how forward-looking information can benefit from a lower liability regime under the PRM;

• the retention of working capital statements, but potentially with the ability to include assumptions and significant judgements in the disclosure;

• a requirement for more sustainability-related disclosure by issuers who identify material climate-related risks or opportunities;

• a requirement for retail offer prospectuses to be published only three working days before admission (decreased from current six working day period);

• an extension of the permitted length of summaries to ten pages, with fewer mandatory financial disclosure requirements and an ability to cross-reference to other parts of the prospectus;

• the retention of discretion whether to incorporate by reference; and

• the provision of specific disclosure requirements for equivalent documents which can be published instead of a prospectus (e.g., where there is a takeover by means of an exchange offer).

For Primary MTF (e.g., AIM) applicants and issuers, the key takeaways are as follows:

• mandatory MTF admission prospectuses needed on all IPOs (whether or not there is an offer) except when an issuer makes use of the AIM Designated Market Route or AQSE fast-track;

• delegation to the market operator (i.e., the London Stock Exchange for AIM) to set disclosure requirements for MTF admission prospectuses, save for the new forward-looking information disclosure and liability regime which will apply;

• MTF admission prospectuses broadly subject to the same rules concerning supplementary prospectuses, advertisements, prospectus responsibility, withdrawal rights and the 3-working day offer period for retail offers;

• AIM issuers will not be subject to the 75 per cent. threshold described above and market operators will be free to set thresholds (if any) for prospectus requirements on a further issue; and

• the FCA will not approve MTF admission prospectuses.