04 Dezember 2023 Sarah Debney Equity Capital Markets

Rules for new prospectus regime laid before Parliament

The draft Public Offers and Admission to Trading Regulations 2023 have been published and laid before Parliament.

Background

The regulations will reform the legal framework for offering securities to the public and admissions to trading in the UK, as part of the wider post-Brexit reforms of UK financial markets regulation. The first draft of the Regulations was published as part of the “Edinburgh Reforms” in December 2022 (see our briefing here) and, following consultation, an amended draft was published in July 2023 (see our briefing here). This final version is substantially the same as that published in July.

Key changes from the current regime

The regulations, when made, will give the FCA new powers to make rules relating to prospectuses and public offers, replacing the existing regime under retained EU law Prospectus Regulation – for the expected timing of this, see below. The main substantive changes between the existing regime  and the new regime include the following:

  • Prohibition on public offers of securities

Currently a company can offer securities to the public if it publishes an approved prospectus or if an exemption from the requirement for a prospectus applies. Under the regulations, public offers will be prohibited, subject to exceptions– prospectuses will only be a feature of admissions to trading on a regulated market or MTF. The exceptions to the public offer prohibition include “familiar faces” from the current regime, for example, the ability to offer or sell securities to professional investors and/or to fewer than 150 other person but new exceptions will apply to  secondary issues, takeovers and schemes of arrangement. 

  • The FCA will make rules about prospectuses for securities to be admitted to trading 

A prospectus may be required when securities are admitted to trading on a regulated market and the FCA began consulting on these requirements via engagement papers released earlier this year. It is expected that a prospectus will still be required when a company’s shares are admitted to trading on an IPO, and the contents of a prospectus are likely to remain broadly the same as under the current Prospectus Regulation. Other primary markets, such as AIM, will make their own rules about “MTF admission prospectuses”.

  • New “necessary information” test 

The draft regulations  contain a minimum overarching “necessary information” content requirement for prospectuses, replacing the current text in the Prospectus Regulation. The new test will allow account to be taken of whether the issuer already has transferable securities admitted to trading and, for debt securities, replaces “prospects” with “credit-worthiness”.

  • Fraudulent liability standard for forward-looking statements

Liability for forward-looking statements will only apply to a person responsible for a prospectus if they knew or were reckless as to whether the information was untrue or misleading or knew that any omission was a dishonest concealment of a material fact. As now, responsible persons may be liable for other statements in prospectuses if they are negligent.

Next steps and timing

Parliament must approve the draft Regulations before they become effective. Once approved they will not enter into force until the FCA has consulted on and published the final regulatory framework for the admission to trading regime. The consultation is expected to be launched in summer 2024, so the new regime is unlikely to be in place before 2025. 

The expected timing for the consultation is set out in the Regulatory Initiatives Grid (see here), the latest edition of which was published by the Financial Services Regulatory Initiatives Forum on 30 November 2023. The Forum is a group made up of bodies including, the Bank of England, the Prudential Regulation Authority, the FCA and HM Treasury. The purpose of the Forum is to share information on, and review the timing of, regulatory initiatives and this latest edition also shows that the FCA will launch a consultation in December 2023 on the rules for the reformed listing regime for equity shares, with the aim of publishing final rules by June 2024.