On 16 May 2017, the Council of the European Union adopted the proposed regulation that repeals and replaces the Prospectus Directive and the Prospectus Regulation (the “New Regulation”). The first prospectus directive was adopted in 2003 and revised in 2009. The updated prospectus rules are in the form of an EU regulation. The Commission issued the proposal for the prospectus regulation on 30 November 2015 as part of the legislative proposals aimed at creating a capital markets union. The regulation is also part of the Commission’s commitment to simplifying EU laws and making them more effective and efficient through its Regulatory Fitness and Performance programme (“REFIT”) . REFIT aims to keep EU law simple, remove unnecessary burdens and adapt existing legislation without compromising on policy objectives.
The New Regulation on prospectuses comes into force on the 20th day after its publication in the Official Journal of the European Union, and this is expected to take place by June 2017. The majority of its provisions apply from 24 months after the date of entry into force. Given that it is a regulation, the new rules are binding and directly applicable in all European Union member states.
Aims of New Regulation
In the context of the capital markets union, the aim is to:
- facilitate access to financial markets for companies, particularly small and medium-sized enterprises (“SMEs”); and
- use the capital markets union project to help businesses gain access to more diversified sources of funding across the EU.
The New Regulation on prospectuses simplifies the rules and streamlines related administrative procedures, and makes it cheaper and simpler for small businesses to access capital markets.
Key features of New Regulation
The New Regulation contains updates and changes from the first prospective directive:
- they do not apply to issues of securities with a value below €1 million (the previous rules set that limit at €100,000). In addition, member states are able to exempt issuers they consider to be small from the obligation to publish a prospectus by setting a higher threshold (up to €8 million) for their domestic markets. This change makes it easier and cheaper for SMEs to raise funding in the EU;
- a new type of prospectus, the EU growth prospectus, will be available for SME companies with up to 499 employees admitted to an SME growth market or small issuances by unlisted companies;
- the New Regulation specifies, with greater clarity, the amount of information needed in order to make prospectuses shorter and clearer;
- companies that are already listed on a public market that wish to issue additional shares (secondary issuance) or raise debt (corporate bonds) are able to benefit from a simplified prospectus;
- companies that frequently issue securities are able to use the universal registration document (“URD”). This is a ‘shelf registration’ containing all necessary information about the company. Issuers that regularly maintain an updated URD with their supervisors can benefit from five day fast-track approval when they need to raise capital on the markets; and
- the European Securities and Markets Authority will, for the first time, provide free of charge and searchable online access to all prospectuses approved in the European Economic Area. This means that paper prospectuses are no longer required, unless a potential investor requests them.
To access the Council’s documents in full, please click here.
For more information, and any guidance or advice on prospectuses, Cleveland & Co, your External in-house counsel, are here to help.