Replacing the UK Prospectus Regulation: FCA consults on proposals for new Prospectus Rules

The FCA has released a consultation on its proposals for the new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook (PRM) which will replace the UK Prospectus Regulation.

In common with the UK listing reforms, in force from 29 July (see here), these proposals form part of the process of ensuring that the UK’s capital markets remain globally competitive. This process began with the Hill Review and the Secondary Capital Raising Review which followed (see here and here). The new prospectus rules will be made by the FCA under a new legal framework established by the Public Offers and Admission to Trading Regulations 2024. The FCA has already carried out a detailed engagement exercise on the new rules, following the publication of engagement papers last year (see here). This briefing covers the key points in relation to the listed equity markets.

Continuity

In the main, the proposed PRM will be broadly consistent with the current UK Prospectus Regulation: a prospectus will be required upon initial admission to trading, prospectus content will be generally the same and the exemptions to the requirement for a prospectus will be carried across from the Regulation. 

However, a number of significant changes are proposed, including:

• raising the threshold at which a prospectus is required on a further issue of shares to 75% (although with the possibility of producing an FCA-approved prospectus for issues below this threshold on a voluntary basis);
• introducing rules around protected forward-looking statements which will be subject to a less strict liability regime, with a view to encouraging companies to make additional disclosures that will be useful to investors;
• extending sustainability reporting requirements
• allowing (i) disclosure of significant judgements made in preparing the working capital statement; and (ii) the working capital statement to be based on the diligence relating to viability and going concern statements; and
• introducing guidance on the complex financial history rules.

Requirement for a prospectus on a further issue of shares

One of the recommendations of the Secondary Capital Raising review was to reduce regulatory involvement in larger fundraisings and to increase the threshold at which a prospectus is required for admission of shares to trading. This threshold is currently set at 20% of existing share capital and the FCA proposes increasing this to 75%.

The consultation states that the FCA does not consider that there is a strong rationale for retaining the prospectus requirements for a further issuance, unless it is of a scale or nature that means existing market disclosure may not give investors clear information. However, the FCA does also propose continuing to allow issuers to publish a voluntary prospectus approved by the FCA. 

Having proposed the increase threshold, the FCA also seeks views on whether to temper the proposal in relation to certain higher risk scenarios, such as rescue financings, by requiring companies to notify it of such circumstances which would allow the FCA the discretion to require a prospectus.

Protected forward-looking statements

The FCA is proposing to define PFLSs both generally and more specifically in relation to categories of financial and operational information.

A statement will be a PFLS if it: 

• contains financial information or operational information as defined in the rules;
• can only be verified for its truth, correctness and completeness by reference to events or sets of circumstances that occur after the statement has been published;
• includes an estimate as to when the event or set of circumstances to which the statement relates is expected to occur;
• contains information that a reasonable investor would be likely to use as part of the basis for their investment decision; and
• is accompanied by a statement identifying the statement as a PFLS. Issuers will have flexibility in terms of how to present PFLSs – either in a separate section of the prospectus or together with other disclosures.

Generally, forward-looking disclosures that are required under the existing regime will not be considered PFLSs.

Sustainability related disclosures

The existing prospectus minimum content requirements for equity and GDR issuers will be extended to include additional disclosures where the company identifies:

• climate-related risks as risk factors; or
• climate-related opportunities as material to its prospects.

While the TCFD or IFRS S2 framework will be points of reference for these disclosures, the FCA is not expecting that issuers will need to disclose all information required under those frameworks in all circumstances – it will be for issuers to determine the information to disclose in line with the threshold set by the general “necessary information” test. 

The FCA proposes that climate-related disclosures relating to strategy, transition plans and metrics will be eligible to be counted as PFLSs subject to meeting the other criteria for PFLS but those on risk management and governance will not.

Working capital

The FCA is proposing to retain the current requirements to include a working capital statement in a prospectus but, to mitigate the financial and time costs involved, is seeking views on whether:

• to allow companies to disclose significant judgements made in preparing the working capital statement; and
• companies should be able to base the working capital statement on the underlying due diligence performed in relation to viability and going concern disclosures in its annual financial statements.

Complex financial histories

Given the removal of the financial eligibility criteria from the UK listing regime, the complex financial history rules will take on greater relevance for some applicants. In light of this, the FCA has provided and seeks views on draft guidance in relation to this regime. This draft guidance states that the financial information necessary to satisfy the rules will depend on the facts of each case but, when reviewing prospectuses of companies which have made an acquisition(s) during the prospectus track record period, the FCA will consider the:

• size of the acquisition(s) relative to the issuer; and
• point in time when the acquisition(s) occurred.

The more recently an acquisition was undertaken and the larger it is, the more likely that it will consider additional information is required.

Next steps

The consultation will close on 18 October 2024. The FCA aims to finalise the new rules by the end of H1 2025, however, it highlights that there will be “a further period” before the new rules come into force so it is likely to be over a year before the new PRMs start to be used.

Alongside this consultation paper, the FCA has also published CP24/13 on the proposed rules for the new regulated activity of operating a public offer platform as a further feature of the new public offer and admission to trading framework.