FCA sets out new approach to prospectus rules

The FCA issued a consultation (CP24/12) on 26 July 2024, outlining measures to reform UK prospectus rules and implement a new regime for companies seeking to admit securities to a UK regulated market or primary multilateral trading facility (MTF).

The proposals maintain a high level of continuity with existing rules to admit securities to a regulated market, but introduce targeted reforms aimed at reducing costs of listing on UK markets, making capital raising easier, and removing barriers to retail participation.

Under the proposals, companies would still be required to publish a prospectus when first admitting securities to public markets, but a prospectus would not be required when a company raises further capital unless in excess of 75% of their existing equity. Sustainability related disclosures in prospectuses and protected forward-looking statements (PFLS) would also be introduced.

What does this mean?

The FCA’s CP follows a multi-year process of review and reform of the UK listing and prospectus regimes, with government and regulators aiming to introduce a more agile and effective regime that is supportive of wider participation in the ownership of public companies.

The government introduced the new Public Offers and Admissions to Trading Regulations 2024 (POATRs) in January 2024, establishing the framework for a new regime and delegating greater rule-making powers to the FCA. The POATRs also establish a different recklessness/dishonesty liability threshold for certain categories of protected forward-looking statements (PFLS) and create a new regulated activity of operating a public offer platform (POP). See further detail on the FCA’s POP framework here.

For the admission of securities to a UK regulated market, the FCA intends to maintain a high degree of continuity with existing rules, but proposes targeted reform in specific areas:

Increasing the threshold for requiring a prospectus

For further issuances of securities on a regulated market, the FCA proposes to increase the threshold for when a prospectus is required from 20% to 75% of existing equity.

Voluntary prospectuses

Companies will be permitted to produce voluntary prospectuses approved by the FCA below this threshold. This optionality maintains the status quo for companies offering their securities in other jurisdictions, e.g. the United States.

Content of a prospectus

The consultation proposes a less prescriptive approach to the preparation of a prospectus by e.g. removing the requirement for detailed financial information in the summary. Specifically, the FCA is seeking views on whether the current ‘binary’ working capital statement should be retained, or whether additional disclosures alongside the statement should be provided.

Protected forward looking statements

In encouraging the promotion of more forward looking information, PFLS, the CP proposes that PFLS will be subject to a reduced liability threshold, and seeks to provide clarity and sufficient legal certainty over what can constitute PFLS and how it should be presented in a prospectus. PFLS would be subject to a general definition aimed at excluding both overly aspirational targets and disclosures expressed in narrative form.

Sustainability

The CP proposes introducing a general requirement for sustainability disclosures in prospectuses. The rules would apply to issuers that have identified climate-related risks as risk factors or climate-related opportunities as material to the issuer’s prospects, and would establish minimum information requirements aligned to the high-level categories common to the Task Force on Climate-related Financial Disclosures (TCFD) and International Sustainability Standards Board (ISSB) standards. Issuers would also need to provide in the prospectus a summary of key information about their transition plan, if applicable. Issuers of debt instruments would also need to disclose whether they are marketed as ‘green’, ‘social’ or ‘sustainable’.

Admission timing

The CP also proposes to change the requirement that a prospectus be made available to the public to six working days (currently three) for admission of securities at IPO. This change is intended to remove an obstacle to issuers including retail investors in capital raising.

For admission of securities to primary MTFs, the FCA proposes to require an MTF admission prospectus for all initial admissions to trading and for admissions of enlarged entities resulting from a reverse takeover. Exceptions to the requirement would be available where the issuer uses the fast-track route on the AQSE Growth Market, or the AIM Designated Market Route. The need for an MTF admission prospectus for further issuances would be at the discretion of the primary MTF.

What do firms need to do?

Firms and investors should assess the cumulative impact of these wholesale and the linked listing regime capital market regulatory reforms.

Issuers should consider whether the reforms could increase capital raising opportunities.

Issuers should assess the relevance and impact of new sustainability disclosure requirements.

The FCA’s consultation comes against the backdrop of a broader agenda of wholesale and capital market regulatory reforms, for example UK listing reform, that will impact the level of protection investors are offered and the regulatory burden for companies.

Investors, in particular, should assess the cumulative impact these changes will have on their investment risk appetite and investing strategies, including whether there is adequate provision of information to make informed investment decisions in secondary offerings.

Issuers should consider the opportunities the new prospectus regime could facilitate to raise additional capital from a broader range of sources, for example, retail investors.

Issuers should also assess the impact of the proposed sustainability disclosure requirements and how this aligns with any existing sustainability requirements, if applicable. Appropriate governance and oversight should be maintained to ensure the minimum disclosure requirements are met.

“We welcome these proposals in so far as they reduce the barriers to UK listed companies raising additional capital particularly as regards setting the mandatory requirement for a prospectus for a secondary equity issue at 75% importantly with the option to voluntarily file a prospectus for lower amounts. The changes to the prospectus disclosures to accommodate forward looking statements alongside introducing sustainability disclosures is a positive step.”

_{John Reilly

Director, PwC’s Capital Markets team}

Next steps

The consultation closes on 18 October 2024; the FCA intends to finalise the overall POATRs regime by the end of H1 2025 before a further period prior to the new rules coming into force.

The FCA plans to issue a further consultation later in 2024 on low denomination retail bonds, certain transitional provisions, and minor changes to make the application process for further issuances of securities more efficient.