The New Prospectus Regulation: An introduction
By the end of this week, the Prospectus Regulation (EU Regulation 2017/1129) will become directly applicable in EU Member States, repealing the Prospectus Directive (EC Directive 2003/71/EC). Some provisions within the Regulation have already become applicable on the 20th of July 2017 and the 21st of July 2018.
The new Regulation will regulate scenarios where securities are offered to the public or admitted to trading on a regulated market. Its purpose is to streamline the current prospectus regime. It also aims to facilitate access to capital markets for companies and harmonise the approval regime across all Member States.
The most substantial changes brought about by the Prospectus Regulation will include;
- Exemption threshold – The threshold above which the publication of a prospectus is required has been increased from a total offer consideration of €100,000 to €1,000,000. Additionally, Member States may decide to exempt offers of securities to the public from the obligation to publish a prospectus. The exemption is applicable where the total consideration of the offer within the EU does not exceed €8,000,000 calculated over a period of 12 months. This threshold has been set to €5,000,000 in Malta’s case. This change in thresholds will make it easier for SMEs to tap into various sources of capital in the EU.
- Prospectus Summary – The prospectus summary cannot exceed a maximum of 7 sides of an A4 sized paper. This is substantially shorter from the requirement under the Prospectus Directive. The Regulation provides that the summary is to be made up of:
(1) an introduction containing warnings;
(2) key information on the issuer;
(3) key information on the securities;
(4) key information on the offer of the securities to the public and/or admission to trading.
The summary must also include up to 15 of the most material risk factors specific to the issuer. If applicable, the risks specific to the Guarantor must be included as well.
- Risk Factors – The risk factors in a prospectus should now be focused specifically on the issuer and the securities. Any generic statements that are not particularly relevant to the issuer or securities must be avoided. Moreover, the list of risks is to be categorised according to their nature. The most material ones shall be disclosed first.
- Universal Registration Document (URD) – This is a new concept introduced by the Regulation. It is intended for companies wishing to make frequent offers of securities to the public. Issuers listed on a regulated market or MTF will be able to file an annual URD. Such will occur if approved by competent authorities, even when such issuers do not immediately intend to publicly offer or list securities. Prior approval will not be necessary before the filing of subsequent URDs if the issuer has had it approved for 2 consecutive years. In such case the issuer will benefit from a fast-tracked approval process.
- EU Growth Prospectus – This new introduction is aimed towards SMEs and similar companies which do not have securities admitted to trading on a regulated market. Through the EU Growth Prospectus, smaller companies wishing to offer securities to the public will have the option of compiling a tailor-made prospectus. This new form of prospectus allows smaller companies to focus on information that is material to them. Therefore, less onerous requirements will be imposed.
- Secondary Issuances – This is applicable to those issuers who already have securities admitted to trading on a regulated market or on an SME growth market. This will be possible after a minimum period of 18 months has elapsed since the initial admission to trading of the securities. In this case, such issuers may benefit from a simplified disclosure regime. The information required is generally simplified to be more proportionate and relevant to secondary issuances.
- Single Access Point for all EU Prospectuses – By virtue of the Regulation, ESMA is required to create an online database to provide access to any prospectus approved within the EU which is published thereon. Such access will be free of charge. This database shall include appropriate search functions ensuring that the public has proper and efficient access to reliable data. The Regulation will also do away with the obligation to submit paper prospectuses, unless a potential investor specifically requests one.
The Delegated Regulations:
The European Commission has also adopted two Delegated Regulations. The first one revolves around the format, content, scrutiny and approval of the prospectus. It also repeals Commission Regulation (EC) No 809/2004. The second Delegated Regulation relates to the regulatory technical standards on key financial information in the prospectus summary. It also provides details on the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus and the notification portal. The second Delegated Regulation also repeals the Commission delegated regulation (EU) No 382/20143 and the Commission delegated regulation (EU) 2016/3014.
The Securities and Markets Supervision section within the MFSA is currently in the process of implementing the new Prospectus Regulation. It shall also be updating the Listing Rules accordingly.
Dr. Jade Fenech
Jade joined E&S Group as a legal associate in 2018. Before joining E&S Group she practised with a litigation firm for two years. She holds a Bachelor of Laws Degree and a Masters of Advocacy from the University of Malta and was admitted to the bar in 2019. Her primary areas of practice are corporate and commercial law, financial services and fintech.
Jade is fluent in English and Maltese.
Phone:+356 2010 3020