FCA: consultation on changes to Prospectus Rules

Background

On 30 November 2015, the European Commission published a legislative proposal for a regulation (the Regulation) to replace the Prospectus Directive. The text of the Regulation was agreed by the Commission, the European Parliament and the Council in December 2016 and once that agreed text has been formally approved by the European Parliament and the Council, it will be published in the EU Official Journal. The Regulation will come into force 20 days after its publication and this is expected to take place by May or June 2017. As it will be directly applicable, the Regulation will not require UK legislation to implement it in the UK.

Most aspects of the Regulation will apply 24 months after it comes into force. However, there are certain provisions that will apply immediately on the date that the Regulation comes into force and the FCA is consulting now on those measures as part of its regular quarterly consultation (CP17/6).

FCA consultation

The aspects of the Regulation that will apply immediately once it comes into force relate to the following exemptions from the obligation to publish a prospectus.

10% exemption

Currently, an issuer does not need to publish a prospectus for an admission of shares to a regulated market if the shares represent, over a period of 12 months, less than 10% of the number of shares of the same class already admitted to trading on the same regulated market. This provision of the Prospectus Directive is implemented in the UK by PR 1.2.3R(1).

Under the Regulation, the 10% threshold is lifted to 20% and the exemption applies not just to shares, but also to “securities fungible with securities already admitted to trading on the same regulated market……”

Conversion or exchange exemption

Currently, an issuer does not need to publish a prospectus for an admission of shares to a regulated market for shares resulting from conversion or exchange of other transferable securities or from the exercise of rights conferred by other transferable securities, if the shares are of the same class as the shares already admitted to trading on the same regulated market. This provision of the Prospectus Directive is implemented in the UK by PR1.2.3R(7).

Under the Regulation, this exemption is limited to an increase of less than 20% of the number of shares of the same class already admitted to trading on the same regulated market over a period of 12 months. That 20% limit is disapplied, however, (i) where a prospectus was drawn up for the securities giving access to the shares; (ii) where the securities giving access to the shares were issued before the Regulation comes into force; (iii) in relation to shares qualifying as Common Equity Tier 1 in the Capital Requirements Regulation and (iv) in relation to shares qualifying as eligible own funds or eligible basic own funds in Solvency II.

FCA proposals

In order to accommodate the above changes, the FCA is proposing to amend PR 1.2.3R (1) and (7) to remove the existing exemptions arising from the Prospectus Directive and to refer instead to the new exemptions in the Regulation. The new directly applicable provisions in the Regulation will be reproduced as a new PR 1.2.3AEU for the convenience of the reader.

The FCA notes that although the Regulation restricts the use of these two exemptions when they are combined, the provision that imposes this restriction is not due to apply until 24 months after the Regulation comes into force.

The proposed rule changes will apply from the date on which the Regulation comes into force (20 days after its publication in the Official Journal.) The FCA has asked for responses on its proposals before 03 April 2017.