Key updates on the Prospectus Regulation

With only two months to go before the full entry into application of the Prospectus Regulation (EU Regulation (2017/1129) on the prospectus to be published when securities are offered to the public or admitted to trading on regulated market), the European Securities and Markets Authority (ESMA) and the European Commission have been busy, issuing new guidelines and delegated regulations in March 2019:

• On 14 March 2019, the Commission adopted two Delegated Regulations on the format and content of the prospectus and on standards for key financial information, approval of prospectuses, advertisements and prospectus supplements.
• On 27 March 2019, ESMA published a new Q&A document on the Prospectus Regulation.
• On 29 March 2019, ESMA published its final guidelines on risk factors under the Prospectus Regulation, as well as its final technical advice on the minimum information required to apply for an exemption from the prospectus obligation.

Delegated Regulations on the format and content of the prospectus and technical standards

Based on the preparatory work of ESMA, the following two Delegated Regulations were adopted by the Commission on 14 March 2019:

• The Delegated Regulation on the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. Annexes 1 to 29 set out the information that issuers must include in the prospectus (of any types), either drawn up as a single document or as separate documents.
• The Delegated Regulation on regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal. Annexes I to VII set out the information that issuers must include in the prospectus summary depending on the type of issuer (non-financial entities, credit institutions, insurance companies, SPV's and close end funds).

Q&A on the Prospectus Regulation

In its new Q&A, ESMA provides further guidance on the transition from the current regime under the EU Directive 2003/71/EC (the Prospectus Directive), which was implemented into the national law of each EU Member State, to the new regime under the Prospectus Regulation.

As a transitional rule, the Prospectus Regulation stipulates that existing prospectuses approved under the current regime will continue to be governed by national law until the end of their validity, or until twelve months have elapsed after 21 July 2019 (i.e. the date of full entry into application of the Prospectus Regulation), whichever occurs first.

ESMA now clarifies that:

• this transitional rule only applies to full prospectuses (i.e. registration document, securities note and summary) and not to any of the following documents:
  • advertisements published after 21 July 2019, but in relation to securities mentioned in a prospectus published under the current regime;
  • registration documents approved under the current regime and which an issuer intends to use as a constituent part of a prospectus to be approved after 21 July 2019;
• such advertisements and registration documents will have to be respectively approved or re-approved under the new Prospectus Regulation. It will, however, be possible to incorporate information in the prospectus by reference to the registration document approved under the current regime;
• despite these restrictions, it will in principle still be possible to passport and supplement a prospectus approved under the current regime until it expires, in accordance with the national law of the issuer's home Member State; and
• an issuer can still rely on the ESMA Q&A on the Prospectus Directive and the ESMA update on the CESR Recommendations insofar as they are not contradictory to the Prospectus Regulation.

The second part of the new Q&A document provides an overview on how to update information in a registration document or universal registration document (i) before it is part of a prospectus and (ii) after it is part of a prospectus.

Guidelines on risk factors

ESMA developed a set of guidelines on risk factors that will assist the national competent authorities (NCAs) in their review of the specificity, materiality and presentation of risk factors. ESMA advises the NCAs to challenge, amongst others, risk factors that:

• do not establish a clear and direct link between the risk factor and the issuer, guarantor or securities;
• merely serve as a disclaimer;
• do not properly disclose the potential negative impact on the issuer, guarantor or securities;
• contain excessive or inappropriate use of mitigating language;
• do not support the overall picture presented by the prospectus;
• are not presented across categories based on their nature; and
• are so extensive that they may obscure the comprehensibility of a prospectus.

Although these guidelines are addressed to NCAs and have no legally binding effect on companies, the explanatory notes and the examples in appendix I of the document are a useful tool for companies when preparing a prospectus.

Technical advice on the minimum information for a prospectus exemption

An issuer is exempted from the obligation to publish a prospectus for the offer and admission to trading on a regulated market of securities in connection with a takeover, merger or division, provided it publishes an equivalent document that contains a minimum level of information (the "Exempted Document"). ESMA's technical advice includes a list of minimum information content regarding:

• the issuer section (appendix II);
• the securities section (appendix III); and
• the description and impact of the takeover/merger/division section (appendix IV).

The Exempted Document can also be subject to a simplified disclosure regime with respect to the issuer section when the issuer has securities already admitted to a regulated market or SME Growth Market (similar to article 14 of the Prospectus Regulation). Appendix I sets out the reduced information content under a simplified disclosure regime for the issuer section.

Where a disclosure item included in the appendices is not material or pertinent, it may be omitted provided that an explanation is included in the Exempted Document.

What happens next?

• From 21 July 2019, the Prospectus Regulation and the EC's Delegated Regulations will fully apply to issuers of securities that fall within the scope of the regulations.
• ESMA's guidelines on risk factors will become effective two months after their publication on ESMA's website in all official languages.
• ESMA's technical advice of 29 March 2019 on the prospectus exemption will form the basis for a delegated regulation to be adopted by the Commission.
• Companies that want to proceed with a public offering or admission to trading on or after 21 July 2019, and that have the obligation to prepare a prospectus under the Prospectus Regulation and Delegated Regulations, are recommended to consult the Q&A on the Prospectus Regulation and the guidelines on the risk factors when preparing the prospectus documents.

For more information on the Prospectus Regulation, please read our previous newsletters on the approval of the Prospectus Regulation and the information note for small public offerings or admissions to trading on an MTF.