Reforming the UK's regime for public offers of securities - new regulations published

Much of the UK regime remains substantively recognisable, the key change being that the Financial Conduct Authority ("FCA") will have more power to decide whether a prospectus is required as part of an application to admit securities to trading on a regulated market, such as the London Stock Exchange Main Market, or a multi-lateral trading facility ("MTF") such as AIM. 

We have set out the key takeaways from the Regulations below.

Prohibition on the public offer of securities

Under the Regulations, "offering a relevant security to the public" will be unlawful unless it falls within at least one of thirteen proposed exemptions (set out in Schedule 1 of the Regulations). The broad FSMA definition of an "offer of securities to the public" is retained so that it includes a communication to any person- in any form and by any means- that provides sufficient information and the terms on which they are offered to enable an investor to buy or subscribe for the securities. Exemptions to the prohibition capture situations where:

• the maximum total consideration does not exceed £5m (lower than the existing EUR8 million threshold);
• the offer is made solely to qualified investors;
• the offer is made to fewer than 150 persons in the UK;
• the denomination per security is at least £50,000;
• each investor acquires securities for a total of at least £100,000;
• the securities are to be, or already are, admitted to trading on a regulated market;
• the shares are issued in substitution for existing shares;
• the shares are issued by way of a dividend in respect of shares in the same class;
• the offer is to existing shareholders or persons connected to them (this is a new exception);
• a company is offering its own securities as consideration when carrying out a takeover of another company;
• the offer is to existing employees and directors;
• the offer is under the UK's banking and central counterparty special resolution regime; and
• the offer is through a "regulated platform" as defined in the Regulations (this is a new exception).

Admission of securities to a regulated market  

Under the Regulations there will be no longer be any automatic requirement for an issuer to publish a prospectus where it wishes to admit transferable securities to a regulated market (such as London's Main Market).  However, this is not designed to do away with the requirement for a prospectus completely as the Regulations will provide the FCA with the power to make rules requiring an issuer to publish a prospectus before applying to submit securities to a regulated market.

Prospectus content

In terms of the content of the prospectus, the Regulations contain broad requirements and one of the FCA's powers will be to authorise omissions or require supplementary information to be provided.

Liability and forward-looking statements

Although the principle stands that persons responsible for a prospectus will remain liable to investors for losses suffered by incorrect or misleading information contained in it (or omissions of certain information from it), in a change to the current regime the FCA will be able to exempt persons from liability for certain "forward-looking statements", known as "protected forward-looking statements". These include projections, estimates, forecasts and targets, as well as statements of guidance, opinion or intent. 

Financial information

In relation to financial information, under a new provision, if a non-UK issuer is required to present historical financial information, it must use of the several specified financial reporting standards, such as the UK IFRS or the accepted accounting principles of GAAP.

Admission of securities to a primary MTF

The Regulations grant the FCA powers to prescribe rules for admitting securities to a primary MTF, which captures markets such as AIM. The FCA will not regulate these markets, but it will have the power to require the operator to include provisions in its securities exchange rules and that might include making admission conditional on the publication of a prospectus. If the FCA were to rule against doing this it would be consistent with current market practice, where admissions to AIM are supported by targeted placings benefiting from one of the current exemptions (and therefore not requiring a prospectus).

Public offers by unlisted companies

The Regulations will amend the Regulated Activities Order 2001 (regulation 46) to create a new regulated activity of operating a public platform. This will require companies to use a regulated platform (such as an equity crowdfunding platform) where the total value of any offer exceeds £5 million unless another exemption is available.

Over to the FCA...

One of the real impacts of the Regulations is that the decision-making for when a prospectus is or may not be required will lie unequivocally with the FCA. This will in future allow the regulator to adapt and modify the prospectus regime without the need for any protracted legislative process, helping the FCA to "move with the times" and keep the regime competitive internationally.

When making any rules the FCA must consider the "desirability of facilitating offers of transferable securities in the United Kingdom being made to a wide range of investors". This is reference to the Government's long-standing objective to maximise the ability for both institutional and retail investors to participate in offerings. Whether the FCA will use its new powers to create more efficient capital markets remains to be seen but it has issued a series of engagement papers setting out how it proposes to use its new powers (including early proposals as to how it would regulate "protected forward-looking statements"), and a formal consultation is expected in the Summer.

Once the FCA has consulted on and finalised the underlying framework of the Regulations they will come substantively into force and the existing regime contained in the Prospectus Regulation will be revoked under the Financial Services and Markets Act 2023.

The Regulations are reproduced in full on the government's website.