The objective to increase the competitiveness of the UK public markets has been led by regulatory and statutory change. Inasmuch as thresholds for listing, and the framework within listing regimes, are based on FCA rules, the UK regulator has over the last year consulted on, and implemented, changes relating to dual class share structures, minimum capitalisation and SPACs. That process continues. Along with that regulatory change, HM Treasury has reviewed in detail the laws around public offerings in general and the statutory requirement to publish a prospectus. This goes further than the listing regime and is outside the remit of the regulator. That review has resulted in the Prospectus Regime Review Outcome (the Review Outcome) published on 1 March 2022 and confirms that the government will replace the existing UK Prospectus Regulation with a new, simpler and more agile regime for companies listing and raising capital.
The Review Outcome sets out the policy approach that the government will take to reform the UK's prospectus regime. The Review Outcome follows the government's Prospectus Regime Review consultation, launched in July 2021.
The Review Outcome confirms that the government will take forward the central proposal in the consultation to separate the regulation of admissions to trading on regulated markets from the regulation of public offers of securities. Currently, this regulation is embedded within the same section of the Financial Services and Markets Act 2000 (FSMA), central to which, and common to both, is the requirement to publish a prospectus.
The government will delegate a greater degree of responsibility to the FCA to set out the detail of the new regime through its rulebook.
Admissions to trading
Currently, the admission to a regulated market is governed by s 85(1) FSMA which requires the publication of a prospectus prior to any application for admission. The FCA's enhanced rule-making responsibilities will enable it to specify in its rulebook if a prospectus is indeed required, including where the offer is by an existing issuer or where an overseas prospectus has been published. The FCA will also be able make rules on what a prospectus should contain and the manner and timing of publication.
Public offers of securities
Similar to admission to trading, and with certain exceptions, s 85(2) FSMA requires the publication of a prospectus prior to an offer of securities being made. Under the new regime, there will be a general prohibition on public offerings of securities, subject to exemptions. These exemptions will be based on those currently set out in Article 1(4) of the UK Prospectus Regulation (for example, offers to qualified investors, offers addressed to less than 150 persons), but expanded to cover:
- offers of securities which are, or will be, admitted to a UK regulated market (e.g. the Main Market (Premium or Standard) and the High Growth Segment of the London Stock Exchange);
- offers of securities to those who already hold equity securities in the issuer, subject to certain conditions, including that the offer is made pro-rata to a person's existing holding; and
- other categories of offer in relation to junior markets, private companies and public offers from overseas (see below).
Thresholds stated in euros will be re-stated in sterling at one to one. (By way of exception, the current €100,000 threshold in the Article 1(4)(d) exemption for offers of wholesale non-equity securities will be changed to £50,000.)
All exempted offers will continue to be subject to an 'equality of information' requirement derived from the requirement currently in Article 22(Advertisements) of the UK Prospectus Regulation.
"Necessary information" test
Similar to Article 6 of the UK Prospectus Regulation, the new regime will retain a single statutory 'necessary information' test as a basic standard of preparation for a prospectus. However, there will be clarification that necessary information may vary according to whether an offer of securities relates to an initial admission to a market or is a secondary offer.
Additionally, for non-equity securities, there will be a modified 'necessary information' test that focuses on the issuer or guarantor's creditworthiness rather than prospects and denomination will not be included as a factor allowing for different disclosures.
Facilitating forward-looking information
There has long been consternation around the inconsistency of allowing the provision of forecasts and estimates to pre-IPO investors whilst all but proscribing their use in a public offering context.
To address this and encourage the inclusion of forward-looking information, the government proposes to raise the threshold for liability that applies to certain categories of forward-looking information in prospectuses. This means that, rather than a negligence-based test, a person responsible for the preparation of a prospectus will be liable only if that person:
- knew the statement to be untrue or misleading;
- was reckless as to whether it was untrue or misleading; or
- in the case of an omission, if that person knew the omission to be a dishonest concealment of a material fact.
The FCA will have responsibility for specifying the categories of forward-looking information to which the new liability threshold will apply. Whilst this change is a positive step, the liability regime of overseas jurisdictions into which a public offering may be made will likely still limit the extent to which this relaxation is capable of being be fully embraced.
Public offerings from overseas
Brexit resulted in an inability to benefit from the "passporting" regime which allowed the use in the UK of a prospectus approved in another EEA State, thereby avoiding duplication of approval process. The Review Outcome envisages a new regime of regulatory deference for offers into the UK of securities listed on certain designated overseas stock markets. This will permit offers to be extended into the UK based on documents prepared in accordance with the relevant overseas rules. Reliance will be on the overall effectiveness of the regulation of the overseas market in question, rather than FCA review, but there will be appropriate powers for the FCA to intervene to protect UK investors in exceptional circumstances. The Review Outcome does not expressly refer to admissions to trading in the UK, so it remains to be seen to what extent this will be relevant to dual listings.
As mentioned above, the government intends to add to the list of exemptions offers that are or will be admitted to trading on multilateral trading facilities (MTFs), e.g. AIM.
It envisages that admission documents published in accordance with the rules of relevant MTFs will be treated as a type of prospectus. This will not change the current system in which operators of MTFs establish admission criteria and rules for the facilities they run, subject to FCA rules and oversight.
Companies will remain able to offer securities to the public without admitting them to a stock market. To increase the capital raising options available, the government intends to remove the current requirement for an FCA-approved prospectus for offers over €8 million. Instead, it will be possible for securities to be offered to the public, provided the offer is made through a platform operated by a firm specifically authorised for the purpose.
A new regulated activity covering the operation of an electronic platform for the public offer of securities, such as an equity crowdfunding platform, will be introduced. It will then be for the FCA to determine the detailed requirements for such platforms.
The government is still considering the threshold below which offers of securities will be exempt from the prohibition on public offers. Such offers will still be subject to the 'equality of information' requirement. The government will not exclude overseas private companies from offering securities to the public in the UK, subject to compliance with UK regulatory requirements.
The government proposes to introduce the necessary legislation when parliamentary time allows, but there is no date for this in the Review Outcome. As already noted, much of the detailed rule-making will be the responsibility of the FCA under its expanded role. This means that the full suite of reforms will only take full effect once the FCA has consulted on, and is ready to implement, those new rules.