Draft Public Offers of Securities and Admissions to Trading Regulations
As outlined in our previous article on this topic, once in effect, the regulations will create a new framework consisting of a general prohibition on offering transferable securities to the public in the UK, subject to specific exemptions. The scope of the new regime will also extend to certain non-transferable debt securities such as mini-bonds. 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. 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 regulatory requirements for offerings on these platforms). The latest draft of the regulations envisages that offers of securities to raise £5 million or less (in any period of 12 months) would also be exempt. Offers to raise larger amounts would need to fall within another exemption or be made on an FCA-regulated crowdfunding platform. Although the £5 million threshold is less than the current EU-derived threshold of €8 million, overall, the new UK regime is expected to offer more flexibility for private companies seeking to raise equity finance and for quoted companies making secondary offerings (discussed in our previous article). Offers that would otherwise be exempt will still need to comply with an equality of information requirement, unless they are below a £1 million threshold.
The government welcomes any technical comments on the draft regulations by 21 August 2023, with a view to finalising them before the end of the year. However, the legislation will not come fully into effect until the FCA has consulted on, and brought into force, its own rules for the new regime.
FCA engagement paper on public offer platforms
Under the government’s draft regulations, operating a public offer platform on which otherwise non-exempt offers can be made (such as those above the £5 million threshold) will become a regulated activity, requiring specific FCA authorisation. The FCA’s fifth engagement paper considers the regulatory regime that should apply to operators of these platforms and offerings made on them. In broad terms, the FCA is proposing to impose requirements on platform operators in the following areas:
- Due diligence requirements, including systems and controls to ensure that a platform operator undertakes appropriate due diligence on companies and prospective offers, and that investors are clear about the due diligence that has been undertaken and the risks that remain.
- Disclosure requirements to ensure that a platform operator provides, or procures the company provides, key information so that investors obtain the information they need to assess the securities.
- Liability for, and the potential for redress from, platform operators.
The paper also includes suggested lists of areas for due diligence and types of information for disclosure.
FCA engagement paper on MTFs
Under the draft regulations, 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 MTFs such as AIM, will be exempt from the general prohibition on public offers. The FCA will determine and administer the admission and prospectus requirements for UK regulated markets, and our previous article discussed the FCA’s proposals outlined in its first three engagement papers in relation to IPOs and secondary offerings on these markets.
The draft regulations also give the FCA an oversight role in relation to some aspects of the rules of primary MTFs for admission to their markets (i.e., AIM and other markets that allow companies to issue new capital rather than only trade existing securities). In particular, the FCA will be able to require an ‘MTF admission prospectus’ (and a supplementary prospectus, where appropriate) to be published when a company seeks admission of its securities to trading on a primary MTF open to retail investors, such as AIM or the AQSE Growth Market. Key provisions in the draft regulations would apply to this document (including the general disclosure standard and liability regimes). The draft regulations also allow the FCA to make rules in relation to the responsibility for an MTF admission prospectus, investor withdrawal rights, protected forward-looking statements and advertisements. However, as now, AIM and other MTFs will be able to decide the detail of their own admission and disclosure requirements, including the format and content of an MTF admission prospectus, and its approval process.
The FCA’s sixth engagement paper sets out its initial thinking about future rules for MTFs under the new public offers and admission to trading regime. Its suggested approach is to require a company to publish an MTF admission prospectus for its initial admission to trading on AIM (or any other primary MTF that allows retail investor participation), regardless of whether it is accompanied by an offer to retail investors (or any securities offering). An MTF admission prospectus may also be required for a re-admission following a reverse takeover that involves the admission to trading of newly issued securities. The FCA proposes that AIM and other primary MTFs would retain discretion as to whether an MTF admission prospectus is required in any other circumstances, such as secondary offerings. The main benefit of this approach would appear to be that offers could be made to retail investors without having to publish an FCA-approved prospectus, although the content requirements of AIM and other primary MTFs for an MTF admission prospectus are still likely to be stringent. In relation to the rules on supplementary prospectuses, the responsibility for an MTF admission prospectus or supplementary prospectus, investor withdrawal rights, protected forward-looking statements and advertisements, the FCA suggests the position should be similar to that which would apply to a prospectus for the London Stock Exchange’s main market and other UK regulated markets.
The FCA requests feedback by email on its engagement papers on the new regime by 29 September 2023 and proposes to consult formally on its new rules in 2024.
Client Alert 2023-172
