Background
The FCA engagement papers follow on from the publication of the government’s proposals for the new UK public offers regime in March 2002 and subsequent regulations issued in draft (to be made under the Financial Services and Markets Bill, when this is enacted). Once finalised and in force, the regulations will set the framework for the new UK regimes for public offers and admissions to trading, and will replace the current regime in the Financial Services and Markets Act 2000 and the UK version of the EU-derived Prospectus Regulation.
Broadly, the new framework will consist of a general prohibition on offering transferable securities to the public in the UK, subject to specific exemptions. Key exemptions that are currently available will continue to apply, such as those for offers to qualified investors and fewer than 150 other persons, and offers to directors and employees, among others. However, there will also be new exemptions, including for pro rata offers to existing shareholders and offers made on FCA-regulated crowdfunding platforms (with the FCA determining the due diligence and disclosure levels required for offerings on these platforms).
Offerings of securities which are, or will be, admitted to trading on the London Stock Exchange’s main market and other UK regulated markets, or certain multilateral trading facilities (MTFs) such as AIM, will also be exempt from the prohibition on public offers. The FCA will determine and administer the admission and prospectus requirements for UK regulated markets. The FCA is also expected to have an oversight role in relation to some aspects of the rules of AIM and other MTFs for admission to their markets. In particular, an admission document for these markets may be classified as a form of prospectus, to which certain provisions in the proposed government regulations and FCA rules would apply (such as the responsibility, general disclosure standard and liability regimes). However, as now, AIM and other MTFs are expected to be able to decide the detail of their own admission and disclosure requirements, including the format and content of an admission document/prospectus.
FCA engagement papers
The three FCA papers concern the prospectus requirements for admissions to trading on UK regulated markets.
- The first of the papers asks for views on when a prospectus should be required for admission to a UK regulated market and when exemptions should be available. It also considers the content and format for an IPO prospectus, the responsibility for a prospectus and the approval process. In general, the FCA does not envisage major changes in this area, and applicants would still need to publish a comprehensive prospectus as part of the initial admission process (or when seeking re-admission after a reverse takeover), for which the company and its directors would be responsible. However, the FCA asks for feedback on a number of specific aspects of the current regime.
- The second paper concerns further equity issues by companies admitted to UK regulated markets. Following the recommendations of the Secondary Capital Raising Review, the FCA is open to making significant changes here. A key proposal envisages a company only being required to publish a new prospectus if it issues further shares representing a much greater proportion of existing share capital than the present rules permit. This might see the current annual limit of 20 per cent of existing share capital being raised to as much as 75 per cent. To ensure transparency, the FCA suggests a shorter document might be required for significant share issues that are below this limit (e.g., at the 50 to 75 per cent level), and stricter rules might be appropriate for higher-risk transactions, such as rescue financings. Different rules might also apply to rights issues and other pro rata offers to existing shareholders. The FCA is also considering mandating that part of an offer be available for retail investor participation (e.g., a minimum of 10 per cent).
- The remaining paper concerns so-called ‘protected forward-looking statements’. To encourage directors to be more ambitious about including financial projections in a prospectus, the government’s draft regulations envisage that liability for this type of content (and similar forward-looking statements) would be based on a fraud standard, rather than the current negligence standard, and would therefore require claimants to establish, as a minimum, recklessness or dishonesty on the part of those responsible. The FCA asks for views on the scope and content of information to be included in this ring-fenced category. It also seeks views on how it should be identified and presented in a prospectus, so it can be readily distinguished from the remaining content (liability for which would continue to be based on a negligence standard).
The FCA seeks views on its proposals by 29 September 2023. It will then provide feedback and consult on the new rulebook in 2024. AIM and other UK MTFs will also need to outline how they propose to adapt their own admission rules for the new regime in due course. The FCA has also published a separate engagement paper that considers how the new framework might apply to non-equity securities.
The three FCA engagement papers form part of a proposed package of wide-ranging reforms to the UK capital markets, on which we have previously reported. Following on from the recommendations in Lord Hill's UK Listing Review, these include: changes to the listing rules on SPACs (effective since 10 August 2021); changes to the rules on the minimum ‘free float’, minimum market capitalisation and dual-class share structures (effective since 3 December 2021); the government’s proposals for the future of the UK's prospectus regime (published in March 2022); the recommendations of the UK's secondary capital raising review (published in May 2022) (together with related changes to the Pre-emption Group Statement of Principles and the IA Share Capital Management Guidelines); and the FCA’s proposed future changes to the UK listing regime (published in May 2023).
Client Alert 2023-124
