Rewriting the Rulebook: bold changes to the UK prospectus framework

The new prospectus regime is part of the FCA’s package of reforms aimed at supporting growth in the UK capital markets. It builds on the FCA’s implementation of the new UK Listing Rules last summer (see our briefing) and is an integral part of the Primary Markets Effectiveness Review.

Under the new regime, the Prospectus Regulation Rules will be replaced by the new “Prospectus Rules: Admission to Trading on a Regulated Market” sourcebook (the PRM Rules). There will also be new rules applying to MTFs which will be added to the Market Conduct sourcebook.

The key rationale of the new regime is the emphasis on reducing the regulatory requirements for disclosure (both in terms of what needs to be included in a prospectus and when a prospectus needs to be produced) saving both time and cost for issuers. However, directors and their advisers should remain alive to the risks of not providing sufficient or correct disclosure particularly when seeking to tap the capital markets. Market practice will no doubt fill the gap left by rules that are less prescriptive and allow far greater flexibility on what information to disclose.

In this briefing, we set out what the new prospectus regime means for equity issuers and their advisers.

Summary of key takeaways

Initial offerings

• a prospectus will always be needed on an IPO for admission to trading on a regulated market
• an MTF admission prospectus will always be needed for admission to trading on a multi-lateral trading facility (MTF) which permits retail participation such as AIM, but an MTF admission prospectus will not need FCA approval

Retail offers

• the mandatory offer period between publication of a prospectus and admission of the securities will be reduced from 6 to 3 working days

Secondary issuances

• the admission to trading on a regulated market threshold trigger for a prospectus for further issuances will be increased to 75% or more of the issued securities in a 12 month period (increased from 20% under the previous regime)
• the FCA will approve voluntary prospectuses if the percentage of the issuer’s securities being issued is below 75%
• the trigger will be 100% of issued securities in a 12 month period for closed ended investment funds (CEIFs) with a further exemption for “C” share issues
• for issuers who seek to avail themselves of a prospectus exemption in the context of a takeover, further detail of content requirements for an “equivalent document” will be provided in a new FCA Technical Note
• a prospectus will not be required for further issues of securities on MTFs (e.g. AIM)

Prospectus content

• historical financial information – current disclosure requirements remain the same although there will be flexibility for companies with a complex financial history (the FCA has published a Technical Note for consultation)
• working capital statements – will remain mandatory but there will be a further consultation on disclosure (for example, disclosure of assumptions) later this summer with a FCA Technical Note to follow
• protected forward looking statements (PFLS) – the conditions for a statement to be a PFLS and a process for setting them out in a prospectus are now included in the new rules, to allow companies and directors to benefit from a reduced liability regime for these statements
• prospectus summary – now 10 pages instead of 7 pages
• incorporation by reference – continues to be permissive rather than mandatory
• sustainability disclosures – enhanced disclosures only specifically required where the issuer has identified sustainability related risks
• MTF admission prospectuses will not be required for further issues of securities on MTFs (e.g. AIM)