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      Your capital and finance

       

      Current state of play

      Prospectus approval

      • Companies that want to offer shares or bonds to investors in the European Economic Area (EEA), or to list them on an EEA ‘regulated market’, can do so with a prospectus approved in one member state.
      • Regulators in other EEA jurisdictions cannot require a company with a prospectus approved by one member state to meet additional requirements before offering or listing shares or bonds (other than a translated summary).

      Offering into, or listing in, the EEA

      • There are circumstances in which companies are exempted across the EEA from preparing a prospectus to offer or list shares or bonds. For offering this includes when they offer to any number of qualified investors in the EEA and up to 150 retail investors in each member state.
      • Outside these exemptions, companies wishing to offer shares or bonds to retail investors around the EEA – or to list on a regulated market in the EEA outside the jurisdiction that approved their prospectus – can use a streamlined system to ‘passport’ their approved prospectus into any EEA jurisdiction.

      Prospectus content

      • Prospectuses must follow the same content requirements – including, for equity and retail debt, a detailed ‘summary’ – regardless of where they are approved in the EEA or whether they relate to an initial or secondary offering or listing.

      UK listings

      • The UK has ‘gold-plated’ certain EU requirements, which means companies seeking a premium listing of shares must comply with super-equivalent eligibility and continuing obligations. It is possible however to seek a ‘standard’ listing of shares or bonds in the UK on an EU directive minimum basis.
      • Certain rules mean it is easier for EEA companies to list in London than it is for companies incorporated elsewhere in the world, for example in relation to the ‘free float’ needed. Shares held by investors in the EEA are included in this 25 per cent ‘public hands’ requirement, meaning investors located in an EEA company’s home jurisdiction count towards this threshold. It is at the discretion of member states whether they also include investors located outside the EEA.

      Continuing obligations

      • There is a single set of disclosure and transparency rules for companies listed on a regulated market anywhere in the EEA, which means those with dual listings do not have to comply with separate obligations in more than one member state.

      Future reform

      • The EU is currently consulting on reform of the Prospectus Directive and the capital markets generally, including proposals to take further steps towards a true capital markets union.

      What should I be thinking about now?

      Prospectus approval

      • Will EEA member states recognise prospectuses approved by the UK? Will this continue even if future content requirements diverge? If not, will a company wanting to offer into or list in both the UK and the EEA need to get a prospectus approved both in the UK (for UK offers or listings) and by a further regulator in its EEA ‘home member state’ (to benefit from an EEA-wide passport)? 
      • Will the UK continue to recognise prospectuses approved by EEA member states? If not, what will be the process to ‘passport in’ to the UK?

      Offering into, or listing in, the EEA

      • Will the UK continue to work to the prospectus exemptions that apply in the EEA?

      Prospectus content

      • Will the UK amend its prospectus content requirements to make it easier for me if I want to do a follow-on issue or subsequent listing?

      UK listings

      • Will the UK amend its ‘standard’ listing category so it is subject to different eligibility or continuing obligation requirements, for example by lowering the ‘free float’ requirement? Will these make it easier, or more difficult, to list or maintain a standard listing? 
      • Will EEA companies find it more difficult to list in the UK, for example because investors located in their home EEA jurisdiction will be treated on a ‘third country’ basis and not routinely included in ‘free float’ calculations?
      • What will the impact be on liquidity in the London market, for example where investors are required to invest in EEA-regulated market securities? Will London be a less attractive venue?

      Continuing obligations

      • Will compliance with UK financial reporting, major shareholding notifications and general information requirements be recognised as ‘equivalent’ by EEA member states, or will UK/EEA dual-listed companies need to comply with two sets of obligations? 
      • Even if the UK is ‘equivalent’ initially, how likely is it UK/EU standards will diverge over time? 
      • Where compliance with two sets of rules is required, how will this work in practice? Will it be possible to make one announcement to meet both UK and EU requirements?

      Future reform

      • If the EU does update the Prospectus Directive, or takes further steps towards capital markets union, will the UK update its rules or will standards diverge?

      What could the position be following a Brexit?

      The answers to many of the above questions would depend on the nature of a post-Brexit UK/EU relationship.

      To give an idea of the range of possible outcomes, we have considered what the position would be under the Norwegian option and the World Trade Organisation (WTO) option – on the basis that these are at opposite ends of the spectrum of existing models for an alternative relationship with the EU.

      What if the UK left the EU, joined the European Free Trade Association and remained a member of the European Economic Area (EEA)? (the Norwegian option)

      If the UK remains in the EEA, there will be no change to current arrangements for the approval of prospectuses, the availability of prospectus exemptions, the ability to passport prospectuses or the application of continuing obligations for listed companies. The UK would, however, be less well-placed to shape future changes in the rules, while still being obliged to implement amendments agreed by the EU.

      What if the UK left the EU without any form of free trade agreement? (the WTO option)

      Prospectus approval

      Current rules in the UK and the rest of the EEA allow a national competent authority to approve a prospectus that has been drawn up in accordance with international standards set by international securities commission organisations. This power could be used by competent authorities to approve prospectuses approved in the UK, and vice versa in the UK to approve prospectuses approved in the EEA, effectively allowing a prospectus to be ‘passported’ in or out on similar terms to the current system. This is currently an individual EEA jurisdiction decision. However, unlike the present position, neither the UK nor the rest of the EEA would be obliged to recognise prospectuses approved by the competent authorities of other member states, and the ‘passporting’ of prospectuses would, therefore, no longer be assured.

      Continuing obligations

      A company with listings in London and on an EEA-regulated market could be required to comply with both UK and EEA continuing obligations in relation to financial reporting, major shareholding notifications and general information requirements. The Transparency Directive does, however, allow national competent authorities to exempt non-EEA issuers from these requirements if, broadly, they comply with the requirements of the law of a non-EEA state that the relevant national competent authority considers as equivalent. It may be possible, therefore, for individual EEA regulators to decide that UK companies with a listing both in the UK and on an EEA-regulated market need not comply with such rules in their EEA home member state.

      While the UK rules on financial reporting, major shareholding notifications and general information requirements currently only apply to companies with a London listing that have the UK as their home member state, it seems likely these rules will be amended so they continue to apply to UK-incorporated companies if Britain were to leave the EU. As with prospectus approvals, however, there would be no automatic exemption from EEA continuing obligations for UK issuers complying with UK requirements.