On 26 July 2024, as part of a package of measures designed to strengthen the UK's capital markets and London's position as a global financial centre, the FCA published CP24/12 (Consultation) consulting on its proposed new rules relating to the reform of the UK public offers and prospectus regime. This is the latest step in the process of modernising the UK's capital markets and follows on from the FCA's changes to the listing regime that were finalised earlier this month and came into effect today (for further information on the listing reforms, see our briefing UK listing reforms: Radical reset to take effect on 29 July 2024).
The statutory framework for the new UK public offers and admission to trading regime is set out in the POATRs (Public Offers and Admissions to Trading Regulations 2024) which were made earlier this year, and the detailed rules currently being consulted on by the FCA will underpin this overarching framework.
The Consultation closes on 18 October and the FCA has said it is aiming to finalise its rules by the end of H1 2025, with a further period after that before they come into force. On that basis it seems unlikely that the new regime will come into effect before the autumn of 2025 at the earliest.
The areas covered by the Consultation include, among others, the FCA's proposed approach to when a prospectus must be published in connection with admission to trading on a UK regulated market (and the associated detailed content requirements and review/approval process), to MTF admission prospectuses, to supplementary prospectuses and advertisements and to the categories of information in a prospectus which will constitute protected forward-looking statements (PFLS).
As expected, based on discussions in its previous engagement papers, in the context of regulated markets (such as the Main Market) the FCA has suggested only limited and targeted amendments to equity IPO prospectuses but has taken a bolder approach to secondary issues where it proposes that the current 20% annual exemption for further admissions should be increased to 75%.
We expect that the FCA's approach to secondary issues will be welcomed by regulated market issuers as, if adopted in the final rules, it would give them greater flexibility and allow them to carry out fundraisings in a more agile manner. That said, the question remains as to how a more limited UK regime would dovetail with the need for the additional disclosures effectively required to be given to investors by US regulations and market practice for so-called Rule 10b-5 comfort to be obtained in certain circumstances where shares are also being offered into the United States (in particular, the placing of the "rump" on rights issues) – although these additional disclosures are likely to be voluntarily made in such circumstances and related complexities in this regard should not detract from the benefits the proposed changes would represent for issuers more generally.
The FCA has, as anticipated, taken a relatively light touch approach to MTF admission prospectuses (MAPs) - a new concept introduced by the POATRs - and, as discussed in further detail below, only intends to mandate these in limited circumstances. However, primary MTFs (such as AIM) will also have flexibility to require them in additional situations if they wish to do so.
In the context of PFLS, as the underlying purpose of the rules in this area is to encourage greater voluntary disclosure by issuers, the FCA has started from the position that forward-looking information specifically required to be provided in a prospectus should generally be excluded from their scope.
We have included some initial key takeaways for equity issuers below and will also publish a more detailed briefing in due course.
This briefing is focused on publicly traded issuers, but it should be noted that the FCA is also consulting separately on proposals for a new activity of operating a public offer platform which, under the POATRs, will offer an alternative route for companies to raise capital outside public markets.
Regulated markets: Equity IPOs
As mentioned, the FCA has focused on targeted and incremental amendments in the context of IPO prospectuses for regulated markets (such as the Main Market) rather than a wholesale rewrite of the rules. Proposed changes include (among others): amendments to the rules around the content and format of the prospectus summary (including removing the need for it to include detailed financial information, permitting cross-references to information elsewhere in the prospectus, and increasing the page limit from seven to ten pages); allowing for incorporation by reference (subject to various provisos); and requiring enhanced climate-related disclosures in certain circumstances. In the context of financial information, the FCA has provided draft guidance on the approach to issuers with complex financial histories and is also seeking views on whether requirements around the age of the latest financial information in a prospectus should be changed to mirror the position that historically applied under the premium listing rules. The FCA is also consulting on the working capital statement, including its interaction with viability and going concern disclosures in annual financial statements and whether to allow disclosure of significant judgements made in its preparation (including assumptions and sensitivity analysis).
It is proposed that, where an IPO involves a public/retail offer, the minimum period for which the offer must be open following publication of the prospectus should be reduced from six working days to three. This is consistent with the recommendations of the UK Secondary Capital Raising Review which identified the current rule as a significant barrier to issuers involving retail investors in their capital raisings.
Regulated markets: Admission of further shares
As mentioned above, the FCA is proposing that the current 20% annual prospectus exemption for admission of further shares to a regulated market (such as the Main Market) post-IPO should be increased to 75% consistent with the recommendations made in the UK Secondary Capital Raising Review. This approach reflects the fact that, where securities of the same type are already admitted to a regulated market, there are less likely to be concerns about information asymmetry than on an IPO given issuers' continuing disclosure obligations under the UK Market Abuse Regulation, DTRs etc. An issuer would however still be able to publish an FCA-approved prospectus on a voluntary basis below the 75% threshold if it wanted to do so.
Whilst the FCA recognises that the above approach has the advantage of simplicity and offers an objective metric, it is also seeking views on a possible supplementary approach to further share issues by companies in financial difficulty given the heightened risks posed to investors in these circumstances. Although it has not proposed any specific rules at this stage, the Consultation does discuss some possible approaches that could be taken.
MTF admission prospectuses
As mentioned, the POATRs introduce the concept of a MAP in the context of "primary MTFs" such as AIM. This is intended to enable primary MTF issuers to offer securities to the public without the burden of having to produce an FCA-approved prospectus, thereby encouraging wider participation in the ownership of such companies.
The detailed content requirements (and any approval or validation process) for a MAP would be set by the relevant MTF operator not by the FCA, and the POATRs specifically prevent the FCA from requiring MAPs to be reviewed or approved by it. However, the FCA has power to require operators of certain primary MTFs (being those, including AIM, which are not restricted to qualified investors) to include provisions in their rules obliging issuers to publish a MAP in specified circumstances. In this context, the FCA is only proposing to require a MAP for initial admissions to trading and for the admission of enlarged entities resulting from a reverse takeover (there will be an exception for existing simplified routes to admission – i.e., the AIM designated markets route and the AQSE Growth Market fast-track route). Primary MTFs will be free to voluntarily update their rules to require a MAP in other situations if they wish to do so (for example in connection with secondary issues of shares).
The FCA intends to remove the current concept of a growth prospectus. It has also determined that it does not have power to create a voluntary prospectus regime for primary MTF issuers, except in limited circumstances.
Protected forward-looking statements
Although forward-looking information is of key importance to investors, it is recognised that liability concerns can currently deter issuers from including it in prospectuses. To address this, and encourage increased disclosure, the POATRs will introduce a fraud/recklessness-based liability threshold (derived from the standards that already apply to certain disclosures post-IPO) for "protected forward-looking information" or, as defined above, PFLS contained in prospectuses (including MAPs). The existing negligence-based threshold will otherwise continue to apply. As a practical point it is worth keeping in mind that, although (once in force) the new liability regime for PFLS should mean that from a UK perspective, issuers have greater flexibility to include certain forward-looking statements in their prospectuses, where shares are being offered outside the UK they will still need to consider the implications of any applicable overseas liability regimes which (as a practical matter) may restrict the extent and content of any such disclosures.
The Consultation sets out the FCA's approach to the detailed rules underpinning the relevant provisions of the POATRs, in particular how PFLS would be defined and presented.
It is proposed that the definition of PFLS should encompass both financial and operational data meeting certain criteria (including as to preparation). However, as the regime is intended to encourage greater voluntary inclusion of forward-looking statements by issuers, in the FCA's view, almost all mandatory disclosures should be excluded from the scope of PFLS. For regulated market issuers, there would be some targeted exceptions to this in order to encourage more detailed disclosure than is typically made under the current regime (for example to allow, among other things, certain of the mandatory disclosures contained in the OFR and certain mandatory climate-related disclosures to be treated as PFLS provided they meet the other applicable criteria). For MAPs, the FCA cannot use targeted exceptions in this way as the detailed contents requirements for the MAP will be set by the relevant MTF operator – therefore it proposes that for primary MTF issuers, PFLS would exclude any information required to be disclosed in a MAP.
In terms of presentation and labelling, the FCA's proposed rules are intended to ensure PFLS is clearly identified and demarcated and are accompanied by appropriate general statements about the associated risks and specific statements containing prescribed information intended to enable investors to evaluate the quality of the disclosures.
In the FCA's press release relating to the Consultation, it said
"We are introducing proposals to promote more efficient and effective capital raising for issuers and increase opportunities for investors, strengthening the UK's position as a global and vibrant financial centre.
These proposals complement our recent work on Listings reform and form part of our wider work to make sure the UK remains an attractive place to list, raise capital and invest, supporting our efforts for international growth and competitiveness, while maintaining protections for investors."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.