On the day of the Chancellor’s maiden Mansion House speech HM Treasury published a near-final version of the proposed statutory instrument (New SI) that will determine the new Public Offers and Admissions to Trading Regime (Public Offers Regime) in the UK. An illustrative version of the statutory instrument was published in December 2022 but following feedback there have been some further changes and these are addressed in the New SI which remains open for comment until 21 August 2023. We note that comments are requested on technical changes only so the substance of what is proposed is unlikely to change.
The aim of the New SI is to make regulation in this area more agile and effective; facilitate wider participation in the ownership of public companies; and delegate a greater degree of responsibility for the regime to the Financial Conduct Authority (FCA).
The New SI will replace elements of the existing Prospectus Regulation and we summarise the major changes below.
- Modified exemptions. A modification to the exemptions to the requirement to publish a prospectus in connection with a new public offer, however, the 150-person exemption remains in place as does the £5 million exemption.
- Setting prospectus requirements. The New SI gives the FCA delegated authority to determine when a prospectus is required and what it should contain, and to address the manner and timing of validation and publication rather than being bound by the provisions of the Prospectus Regulation as is currently the case. We have not yet seen any draft FCA rules to replace the Prospectus Regulation Rules although they are likely to follow the outcome of the recently closed FCA consultation regarding Primary Markets Effectiveness.
- Prospectus requirements for junior markets. The FCA is to have rulemaking powers over ‘primary MTFs’ (multi-lateral trading facilities) (such as AIM and the Aquis Stock Exchange Growth Market, which are MTFs which operate as primary markets and allow companies to issue new capital rather than only trade existing instruments) but MTF operators will retain broad discretion to set rules on the content and approval or validation mechanism for MTF admission prospectuses. The content will be subject to the “necessary information” requirement which is very similar to one of the existing AIM Rules admission document content requirements.
- Forward-looking information. The liability framework around certain categories of forward-looking statements is being altered to encourage these statements to be made. This has been done by exempting those responsible for a prospectus from the obligation to pay compensation for certain forward-looking statements provided that they did not know it was untrue or misleading or were reckless as to whether it was untrue or misleading, or knew there was an omission from the protected forward-looking statement to be a dishonest concealment of a material fact. To qualify for this protection the statement needs to be identified as a forward-looking statement in the prospectus and therefore such statements are likely to receive scrutiny from the FCA in the review process. This may be similar to the way statements that might qualify the working capital statement are reviewed. Also, the new exemption only relates to the prospectus compensation regime and does not relate to other forms of civil or criminal liability and so the effect of this change may well be limited.
- Public offer platforms. The New SI will permit offers of unlisted securities with a value of over £5 million without a prospectus provided the offer is made through a public offer platform (such as a crowdfunding platform). This will be facilitated by the creation of a new regulated activity covering this and also these platforms will be authorised and supervised by the FCA and subject to the FCA’s rules which are expected to cover matters such as due diligence and disclosure to investors.
- Non-transferrable securities. The New SI brings certain non-transferable securities into the Public Offers Regime so that offers of certain non-transferable securities above the £5 million threshold will need to be made through a public offer platform unless another exemption applies. These non-transferrable securities will include “mini bonds” but not wholesale loan markets, over-the-counter (OTC) derivatives, building societies, credit unions, or cooperative and mutual benefits societies as were previously mooted.
The powers to enable the government and regulators to reform the UK financial services sector were introduced by the Financial Services and Markets Act 2023 and this received Royal Assent on 29 June 2023. While most provisions do not take effect immediately, once the relevant sections come into force this will pave the way for the new Public Offers Regime and other significant reforms.
For further information and support, please get in touch.
For further information, please contact:
Jonathan Morris, Partner, Hill Dickinson
jonathan.morris@hilldickinson.com
