As part of the series of Mansion House Reforms presented by the Chancellor on 10 July, which build on the Edinburgh Reforms, the Government announced a package of updates and initiatives designed to encourage companies to grow and list in the UK.
Amongst other measures aimed at making the UK 'the global capital for capital', the Government:
- announced its response to the Investment Research Review, accepting all recommendations made to it;
- published a near-final version of the Public Offers and Admissions to Trading Regulations that will replace the retained EU law version of the Prospectus Regulation (UK Prospectus Regulation), together with an accompanying Policy Note; and
- announced the establishment (before the end of 2024) of a highly innovative ‘intermittent trading venue’ that seeks to improve the access of private companies to capital markets before they publicly list.
Public Offers and Admissions to Trading Statutory Instrument
In overview, the draft Public Offers and Admissions to Trading Statutory Instrument (SI) addresses one of the key recommendations set out in Lord Hill's UK Listing Regime Review - a 'fundamental review' of the prospectus regime - and forms part of HMT's programme to deliver a framework for financial services which is tailored to the UK markets in a post-Brexit landscape. The Financial Services and Markets Act 2023, enacted last month, repeals retained EU law relating to financial services and the SI replaces retained EU law relating to the existing prospectus regime with a new regulatory framework for public offers and admissions to trading, within which the setting of detailed rules is delegated to the FCA – in line with the FSMA model of regulation.
An illustrative version of the SI was published in December 2022 as part of the Edinburgh Reforms to demonstrate how the Government intended to use powers set out in the (then) Financial Services and Markets Bill to implement a new regime for public offers and admissions to trading (see Ashurst AGC update). The SI broadly follows the earlier iteration, with some modifications. HMT welcomes any technical comments by 21 August 2023.
The SI seeks to progress the recommendations of the UK Listing Regime Review as taken forward in HMT's Prospectus Regime Review Outcome: simplifying regulation in this sphere and making it more agile, encouraging wider participation in the ownership of public companies, improving the quality of information investors receive and, ultimately, bolstering the attractiveness of the UK as a listing venue.
Key features of the new regime are as follows:
- A new public offer architecture. Under the new regime, there will be a general prohibition on public offers of securities against which there will be exemptions. These exemptions will be based on existing exemptions in the UK Prospectus Regulation (such as offers to qualified investors), but will be expanded for greater flexibility. The main exemptions will apply to offers where securities are admitted (or will be admitted) to trading on UK regulated markets or multilateral trading facilities (MTFs) and a new public offer regime for offers that are made outside the scope of these markets (see below).
- Admissions to trading on regulated markets. The FCA will be given enhanced rule-making responsibilities in relation to the admissions of securities to trading on UK regulated markets which will allow it to specify when a prospectus is required, prospectus content and how a prospectus should be validated and published.
- Admissions to trading on MTFs operating primary markets. The FCA will have more limited rule-making powers in relation to primary MTFs. Whilst the FCA will be able to require the issuance of an MTF admission prospectus as a condition of admission to trading on a primary MTF, it will only be able to do so where the securities are being admitted to trading on markets open to retail investors. This reflects a shift in approach from the illustrative SI. Primary MTF operators will also be able to require the publication of an MTF admission prospectus for the admission of securities to trading on their markets and will have wide discretion to determine rules relating to the content and approval or validation processes for these documents. Importantly, MTF admission prospectuses will benefit from certain protections that apply to prospectuses, from both an investor and an issuer perspective.
- Forward-looking statements. Forward-looking information was highlighted by Lord Hill as particularly useful for investors when making investment decisions. It was also argued that the existing liability regime discourages companies from including such information in prospectuses. The new regime will aim to respond to market imperatives by raising the liability threshold – to a fraud or recklessness standard - for certain categories of forward-looking statements in prospectuses or MTF admission prospectuses, which will be specified by the FCA. In other respects, the revised regime retains the existing negligence-based threshold for liability for false, misleading or omitted information.
- Offers of securities not admitted to trading. As is the case under the existing regime, the revised regime will allow companies to offer securities to the public without having the securities admitted to a securities market. Currently, however, the UK Prospectus Regulation provides that offers to the public of €8 million or above necessitate the publication of a prospectus. Going forward, the Government will not retain this requirement. Under the new regime, unless another exemption applies, offers of securities above a £5 million threshold must be made through a public offer platform (such as a crowdfunding platform), which will be authorised and supervised by the FCA and will be subject to FCA rules. The SI creates a new regulated activity of operating a public offer platform to facilitate this reform – a further update to the illustrative SI.
- Revised scope of the public offers regime. In line with one of the recommendations of the Gloster Report, the SI expands the scope of application of existing obligations under the UK Prospectus Regulation, which currently apply to transferable securities, to include certain types of non-transferable securities. As a result, any offers of such securities above £5 million will need to be made through a public offer platform, unless they fall within another exemption.
The publication of the SI is a significant step in the delivery of a revised public offers and admissions to trading regime. It is expected that the SI will be laid before Parliament by the end of the year, subject to parliamentary time allowing. The detailed FCA rules regarding admissions of securities to trading on UK regulated markets, which together with the SI will fully implement the new regime, are expected during the course of 2025. The FCA has already published a series of engagement papers setting out the principal issues it is considering as part of its extensive process of stakeholder engagement and a formal consultation is anticipated in 2024.