UK government sets out plans for new prospectus regime

The government has published (1 March 2022) its Review Outcome to the UK Prospectus Regime Review. One year on from the publication of Lord Hill’s landmark UK Listings Review, the new document sets out the policy approach the government will take to reform the UK’s prospectus regime, following the Prospectus Regime Review consultation. 

The aim is to simplify the prospectus regime and make UK markets, including the London Stock Exchange's Main Market and AIM, more competitive with global markets, improving the capital-raising process while maintaining the standards for which they are known.

The government will replace the regime currently contained in the UK Prospectus Regulation (as adopted from the EU Prospectus Regulation following Brexit) and will legislate to do so when parliamentary time allows. The government will delegate a greater degree of responsibility to the Financial Conduct Authority (FCA) to set out the detail of the new regime through rules. As such, the full suite of reforms will take full effect after the FCA has consulted on, and is ready to implement, new rules under its expanded responsibilities.

Rather than a radical departure, the review focuses on the existing limbs of the UK Prospectus Regulation: admission to trading on a regulated market and public offerings of securities.

Admissions to trading on a regulated market

The government intends to give the FCA enhanced rule-making responsibilities regarding admissions of securities to trading on UK regulated markets and allow the FCA to specify:

• if and when a prospectus is required;
• what a prospectus should contain;
• the manner and timing of publication of a prospectus; and
• whether a UK prospectus is required for a secondary listing or whether to rely on an overseas prospectus;

The ability to rely on an overseas prospectus for admission of securities to trading on a UK regulated market is particularly interesting and aligns with the government's stated aim of "boosting the attractiveness of our capital markets".  The existing equivalence regime was little (or never) used due to the need for UK review and approval of the prospectus. This suggests the FCA may be able to rely on overseas (probably EU) prospectuses to fast track applicants to UK regulated markets.

Public offerings of securities

Prospectuses will not be a feature of the public offerings regime. In the new system, there will be a general prohibition on public offerings of securities against which there will be exemptions. These will be derived from Article 1(4) of the existing UK Prospectus Regulation. However, the list of exemptions will be expanded to cover offerings of securities:

• which are, or will be, admitted to UK regulated markets;
• to those who already hold equity securities in the offering company, subject to certain conditions, including that the offer is made pro rata to a person's existing holding; 
• which are or will be admitted to trading on certain multilateral trading facilities (MTFs) including AIM; and
• by companies that have prepared an offering document according to the rules of an overseas jurisdiction.

The "existing holders" exemption may see the existing €8 million threshold (to become £8 million) on open offers removed, allowing companies to make far larger offerings to their existing holders in a 12-month period without the need to issue a prospectus. This would be in line with the government's aim of "facilitating wider participation in the ownership of public companies, including for retail investors". Interestingly, the new exemptions will not apply to securities of another company offered as consideration (for example, as part of a merger or acquisition).

The MTF exemption aims to remove perceived disadvantages faced by companies admitted to trading on an MTF from offering new securities to a wider investor base. The consultation paper gives the example that if a company on a UK MTF is contemplating raising more than €8 million, it does not have to publish a prospectus if it offers the shares to fewer than 150 natural or legal persons, excluding qualified investors. If it offers them more widely, it does. The new MTF exemption would allow companies admitted to trading on a UK MTF, for example AIM, to make a secondary offering of securities to the public of more than €8 million without requiring a prospectus.

Osborne Clarke comment

We look forward to the FCA's consultation on its new responsibilities. The proposed changes will improve access to UK markets and provide a range of financing options not currently viable due to the UK Prospectus Regulation.