The changes, which follow reforms to the circumstances in which a company or other entity may offer its securities to the public, would bring rule-making power closer to the regulator and allow for a more flexible trading environment.
The Financial Conduct Authority (FCA) has launched two consultations on how it intends to use its new powers to regulate admissions to trading on public markets, as well as platforms that will facilitate public offers outside the primary markets ecosphere.
Background
In January 2024, the Public Offers and Admissions to Trading Regulations 2024 (POATR) became law. The POATR (which are yet to come into effect) replace the on-shored, UK version of the EU Prospectus Regulation with a new regime.
Under that new regime, all offers of securities to the public are prohibited unless they are made via a primary capital market or a public offer platform (POP) or an exemption applies.
Where a public offer is made via a regulated market(such as the London Stock Exchange (LSE) Main Market), a prospectus will generally be required (as is currently the case). The FCA is required to create rules setting out the circumstances in which a prospectus is required (or in which an offer is exempt) and what the prospectus must contain.
Where a public offer is made via a "primary MTF" (such as the LSE's AIM market or the AQSE Growth Market) and securities will be available to retail investors, the FCA has the power to set rules requiring an admission prospectus, but the market operator will generally retain discretion over its content.
Public offers made via a POP will not require a prospectus. However, operating a POP is a new regulated activity, and the FCA has power to impose requirements on POP operators, including as to disclosure of information.
Proposals for regulated markets
For admissions to regulated markets, the FCA is proposing to replace its existing Prospectus Regulation Rules (PRR) with a brand-new sourcebook, to be named the "Prospectus Rules: Admission to Trading on a Regulated Market" (PRM) sourcebook.
The FCA is intending to largely replicate the existing regime for prospectuses on admission to a regulated market (including existing exemptions), but with some further relaxations. The key points are:
- The FCA will keep the current exemption from a prospectus on a takeover where an equivalent document (an "exemption document") is published, but is seeking views on ways it can make this exemption even more effective.
- For follow-on capital raises, the threshold below which a prospectus is not required would increase from 20% of the issuer's existing share capital to 75%. (This would continue to apply only to securities of a class already admitted.) This change would exempt a significant range of secondary issuances from the need to produce a prospectus. However, issuers would continue to be able to publish an FCA-approved prospectus on voluntary basis, should they wish to do so.
- The page limit for a prospectus summary would increase from seven to ten pages, the requirement for detailed financial information would disappear, and issuers would be able to cross-reference to the main body.
- The FCA is proposing to keep the requirement to include a working capital statement in a prospectus. However, it is seeking views on whether to allow that statement to be accompanied (in effect, qualified) by assumptions and judgements.
- If the issuer has identified climate-related risk factors, or climate-related opportunities that are material to its prospects, it would need to include supporting climate-related information to allow investors to make an informed assessment of that risk or opportunity.
- If the issuer has already published a transition plan, the prospectus would need to provide key information about the plan and state where the plan can be found.
- The minimum pre-offer period during which a prospectus must be publicly available would reduce from six working days to three. This should make for quicker and more efficient capital raising.
The consultation also includes proposals on how the FCA intends to define protected forward-looking statements – statements of financial or operational information that relate to future events or circumstances which fall within a slightly more relaxed regime for liability than the rest of a prospectus. These proposals will apply to both regulated markets and primary MTFs (on which, see below).
Proposals for primary MTFs
For admissions to primary MTFs, the FCA is proposing to add a new chapter to its Market Conduct (MAR) sourcebook. The key proposals are:
- Although the FCA can make specific rules for MTF prospectuses on offers involving retail investors, it is proposing to require a prospectus for all initial admissions and reverse takeovers. It believes this will align the regime for retail and non-retail offers, encouraging more retail participation by default, and create a simpler framework.
- However, no prospectus would be needed if the issuer is already admitted to another exchange and utilising the "Designated Market Route" for AIM or the "fast-track route" for the AQSE Growth Market. (The FCA will consider exceptions for expedited admissions to other primary MTFs.)
- Primary MTF operators would decide whether to require a prospectus for a secondary issuance.
Public offer platforms
For public offer platforms (POPs), the FCA is proposing to insert a new chapter into its Conduct of Business Sourcebook (COBS), which sets out rules for regulated activities. It has assumed that POPs will most likely be used by earlier-stage and smaller companies that have more uncertain prospects and a higher risk profile for investors.
The FCA's proposals are based on key objectives: permitting capital-raising in an efficient way, ensuring proportionality, reducing unnecessary cost and removing barriers to retail participation, whilst also mitigating against consumer harm and ensuring sufficient disclosure for investment decisions.
To this end, the key points are:
- POP operators would need to carry out due diligence on issuers to assess their appropriateness and ensure that investors receive sufficient and accurate information.
- Issuers would need to disclose core information, including their management and controllers, business model, risk factors, material contracts, and financial accounts and reports.
- They would also need to disclose information on the public offer, including the target amount, rights attaching to the securities, proposed use of funds, and tax reliefs available for investors.
- The POP operator would need to verify these disclosures, obtaining independent evidence to support factual information and conducting a "plausibility assessment" for non-factual information. It would also need to satisfy itself as to an issuer's creditworthiness.
- The operator would then provide a disclosure summary to investors describing the issuer and the offer. This would include not only a summary of the information provided by the issuer, but also of the checks the operator has undertaken and the output of its appropriateness assessment.
- The FCA is not proposing to require POP operators to make further disclosures once an offer has closed, but it is seeking views on whether it should do so to prevent asymmetry of information.
- POP operators would be permitted to facilitate offers with a total amount of £5 million or below (which are completely exempt from the prohibition on public offers). However, they would need to ensure that the offer carries a risk warning that it is not subject to the same regulatory treatment.
Next steps
The FCA has requested comments on both consultations by 18 October 2024.
Read FCA Consultation Paper CP24/13 on proposals for public offer platforms (opens PDF)
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.