On the 21st July 2019, the new Prospectus Regulation (Regulation (EU) 2019/1129, which repeals the Prospectus Directive (EC Directive 2003/71/EC), came into full effect across the entire European Union.
The coming into force of the Prospectus Regulation represents not just a major change in capital markets regulation, but also the most significant accomplishment to date in the EU’s Capital Markets Union reform agenda. The principal aim of the Capital Markets Union is to help businesses tap into more diverse sources of capital from anywhere within the European Union and help markets work more efficiently.
The salient changes brought about by the Prospectus Regulation are the following:
- Implementation. As the provisions of the new prospectus regime are now set out in a regulation instead of a directive, they are directly applicable without the need for implementing laws in each EU member state.
- Universal Registration Document. The Prospectus Regulation introduces a multi-purpose passportable shelf document, which may be utilised by frequent issuers admitted on the regulated market, known as the Universal Registration Document (“URD”). This URD promises an accelerated access to the capital markets and a more efficient financial reporting process for the issuers electing this option.
- Reduced Disclosure for Secondary Issuances. Secondary issuances will be subject to more relaxed prospectus requirements and offers to directors and employees continue to be exempt from the obligation to publish a prospectus.
- Exemption Threshold. The Prospectus Regulation increases the minimum which triggers the requirement to publish a prospectus, to an aggregate offer amounting to €1 million. States may utilise a higher threshold for their domestic market for up to €8 million.
- Risk Factors. Guidance as to the information required when disclosing the risks associated to the issuer and/or the securities is also heightened under the Prospectus Regulation. The disclosure of the risk factors under the Prospectus Regulation entails a thorough assessment of the risks which are limited specifically to the issuer and/or to the securities in question.
- Prospectus Summary. There are new summary requirements, including a limit on listing only the fifteen most material risk factors and restricting the length of summaries in most cases to a maximum of seven sides of A4.
- EU Growth Prospectus. This permits an alleviated standard of disclosure in a standardised format and widens the definition of SMEs. These provisions aim to facilitate access to capital markets for smaller companies.
The Prospectus Regulation aims to make it less costly for issuers to produce a prospectus, to improve the value of the prospectus as an information tool for investors and to create a proportionate regime for SMEs, to draw up a prospectus and access capital markets.