Ashurst Quarterly Debt Capital Markets Update Q3 2021

We have a number of different developments to report on in this edition:

• Taking back control of the UK's prospectus regime
• European Commission proposes EU Green Bond Standard Regulation
• ESMA publishes updated Q&As on the EU Prospectus Regulation
• FCA consults on changes to the UK PRIIPs regime
• EU MAR, credit ratings and inside information
• BRRD: Mandatory requirements for contractual recognition of stay powers clauses
• IBOR transition: Treasury proposes UK BMR safe harbour provisions
• European Commission amends EU PRIIPs Regulation regime
• BRRD: Contractual recognition of bail in and "impracticability"
• FCA designates Article 23A benchmarks and launches tough legacy consultation

Taking back control of the UK's prospectus regime

On 1 July 2021 HM Treasury published a consultation document (UK Prospectus Regime Review - A consultation) which it says represents a major step in the fundamental reform of the UK's prospectus regime. From a debt capital markets perspective the main points of the proposals in this consultation are:

• only key elements of the UK's new prospectus regime would remain in primary legislation, with the bulk of the detailed requirements being moved to the FCA Handbook (as prospectus rules) with the aim of increasing flexibility;
• by and large both the parameters and the detail of the current prospectus regime would be retained but the FCA would be given the power to adopt a more flexible approach to rule-making and interpretation;
• new exemptions would be introduced to the current prohibition on public offers of securities without an approved prospectus;
• the principal new exemption would be for issuers with (or applying to have) securities admitted to trading on a UK regulated market or MTF;
• it is not clear whether the exemption for non-equity securities with a denomination of at least €100,000 would be retained, although it is clear that all monetary thresholds would be restated in sterling; and
• forward looking information in prospectuses would be encouraged by a lower liability standard for such information compared to the other information in a prospectus.

The consultation closed on 24 September 2021.

European Commission proposes EU Green Bond Standard Regulation

On 6 July 2021, the European Commission published its proposal for a regulation on European green bonds. Briefly:

• The proposed European Green Bond Standard will be a key element of the EU's Action Plan on Financing Sustainable Growth;
• It will be a voluntary standard, open to all EU and non-EU issuers;
• The standard requires that issuers must allocate the net proceeds to economic activities that meet the EU Taxonomy requirements;
• The use of proceeds will be subject to external review; and
• External reviewers must be approved by and registered with ESMA, but need not be established in the EU.

For more information see this Ashurst briefing.

ESMA publishes updated Q&As on the EU Prospectus Regulation

On 16 and 27 July 2021, ESMA published updated versions of its Q&A on the EU Prospectus Regulation. Amongst the more significant new Q&As for debt capital markets are:

• New Q&As 3.4 and 3.5 dealing with the possibility to update the registration document information in a prospectus after the registration document has expired;
• New Q&A 6.3 dealing with choice of home member state for prospectuses for certain types of non-equity securities for an issuer incorporated in a member state; and
• New Q&A 7.5 which says that cumulative figures for the full financial year, disclosed in quarter four reports, should be considered interim financial information not a profit estimate.

FCA consults on changes to the UK PRIIPs regime

On 20 July 2021, the FCA published a consultation paper (CP21/23) on a number of proposed changes to the UK PRIIPs regime:

• Replacement of performance scenarios with narrative information on performance;
• Mandatory inclusion of a graphical representation of the PRIIP's past performance, subject to certain exemptions (the FCA is not actually proposing this change, just canvassing views);
• Obligation on PRIIP manufacturers to increase a product’s SRI risk rating score where the methodology under the PRIIPs regime produces a score that is misleadingly low;
• Expansion of the permissible risk disclosure narrative limit from 200 to 400 characters;
• Safe harbour conditions which may be followed to ensure that a PRIIP is not inadvertently 'made available' to retail investors in the UK, and therefore avoid the production of a precautionary KID;
• Clarity around certain terms and features of debt securities that will NOT make such securities a PRIIP; and
• Certain targeted amendments to improve the accuracy of transaction cost reporting.

The consultation closed on 30 September 2021. The FCA plans to make the final rules and amend the PRIIPs RTS by the end of 2021, with any changes coming into effect on 1 January 2022.

For more information see this Ashurst briefing.

EU MAR, credit ratings and inside information

On 6 August 2021, ESMA published an updated version of its Q&As on the EU Market Abuse Regulation. This is the first update of these Q&As since March 2019 and it includes a new Q&A 5.8 which confirms that information relating to credit ratings or rating outlooks is in all circumstances "inside information".

BRRD: Mandatory requirements for contractual recognition of stay powers clauses

On 16 August 2021, the European Commission published its final rules on the contractual recognition in non-EEA law contracts of the potential application of BRRD stay powers. For more information see this Ashurst briefing.

IBOR transition: Treasury proposes UK BMR safe harbour provisions

On 8 September 2021, HM Treasury published draft "safe harbour" rules that aim to protect users and administrators of rates that have been designated "unrepresentative" by the FCA but continue to be used on a synthetic basis under the UK's tough legacy regime. The FCA is now consulting on the question of exactly what types of contract should constitute tough legacy and a policy statement is expected to follow later this year. For more information see this Ashurst briefing.

European Commission amends EU PRIIPs Regulation regime

On 7 September 2021 the European Commission adopted a Delegated Regulation and Annexes amending the EU PRIIPs KID RTS. These documents are now subject to scrutiny by the European Parliament and the Council of the EU and are scheduled to apply from 1 July 2022. The principal changes they propose are:

• New methodologies underpinning the calculation of appropriate performance scenarios and a revised presentation of these scenarios;
• Revised summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs;
• A modified methodology underpinning the calculation of transaction costs; and
• Modified rules for multi-option products (MOPs).

BRRD: Contractual recognition of bail in and "impracticability"

On 17 September 2021 Commission Delegated Regulation (EU) 2021/1527 with regard to regulatory technical standards (RTS) for the contractual recognition of bail-in (CROB) was published in the Official Journal. These RTS specify the conditions under which it would be legally or otherwise impracticable for an in-scope institution to include a CROB clause and entered into force on 7 October 2021. The list of conditions is short and exclusive and is unlikely to be relevant to typical programme or new issue documentation.

FCA designates Article 23A benchmarks and launches tough legacy consultation

On 29 September 2021, the FCA undertook a number of important actions relating to the UK's framework for the orderly wind-down of LIBOR under the UK Benchmarks Regulation (UK BMR). In particular, the FCA:

• launched its highly-anticipated "tough legacy" consultation, proposing (i) broad tough legacy parameters and (ii) a restriction on the use of USD LIBOR by supervised entities after 2021;
• designated certain LIBOR rates as Article 23A benchmarks under the UK BMR; and
• compelled ICE Benchmark Administration to continue to produce the designated rates on a synthetic basis for at least twelve months.

For more information see this Ashurst briefing.

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