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Part II The New EU Prospectus Rules, 17 The Prospectus Regime and Brexit

Simon Gleeson

From: Prospectus Regulation and Prospectus Liability

Edited By: Danny Busch, Guido Ferrarini, Jan Paul Franx

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 22 September 2020

Prospectus — Securities

(p. 391) 17  The Prospectus Regime and Brexit

I.  Introduction

17.01  The EU Prospectus Regulation1 is the latest step in a long chain of pieces of legislation designed to harmonize securities issuances throughout the EU.2 Historically, prospectuses were required by exchanges, and the production of a prospectus was a precondition to listing on an exchange. Each exchange had its own requirements—usually idiosyncratic—and negotiation of the content of the listing document was with the exchange authorities.

(p. 392) 17.02  The EU system effectively split this structure. The requirement to establish a listing authority was separated from the function of operating the exchange, and effectively made a regulatory function. However, individual national authorities were permitted to retain their national disclosure requirements. This diversity of requirements was not conducive to mutual recognition of offering documents, and it was eventually realized that only a single, centrally determined set of mandatory content requirements would be sufficient to eliminate national eccentricities, and this was created and implemented in the form of the Prospectus Directive of 2003,3 which was accompanied by a Prospectus Regulation4 which set out in detail what the disclosure elements of a prospectus actually were. In effect, this regulation created a single European set of mandatory content requirements for offer documents, and facilitated a genuinely Europe-wide prospectus regime.

17.03  It is fair to say that the result of the implementation of the Prospective Directive and its accompanying Regulation was probably not what was expected. In the equity markets, relatively little changed—small firms continued to list on their local exchanges, large firms continued to raise equity in the US, and those who experimented with the ability to list on a wide variety of other markets tended to find that the costs of maintaining multiple listings outweighed the benefits. In the debt markets, however, firms increasingly listed through the Luxembourg and Dublin listing authorities, passporting to other exchanges if required.

The result of this was an increasing separation between the place where the securities were admitted to listing and the place where they were actually traded. In general, listing remained concentrated in the major European centres, whereas trading increasingly occurred in London.

17.04  It is reasonably well known that although admission to listing is a mechanism which permits public offering of securities, many of the securities (particularly debt securities) which are admitted to listing are in fact never offered to the public, but instead are privately placed with a relatively small number of investment institutions. For such offerings, the fact of listing is primarily a third-party ‘kitemark’ for the offering document. This means that there are a number of discontinuities within the system which make analysis of the cross-border impact of Brexit that much more challenging. In particular, we are likely to see the spectacle of offer documents submitted for approval for a process which permits their public offering within the EU, where the common intention of all concerned is that the securities will be privately placed outside the EU.

(p. 393) II.  Brexit and Listing—The UK Position

17.05  There are three relevant pieces of UK legislation as regards Brexit. The first of these, the European Union (Notification of Withdrawal) Act 2017, allowed the UK Government to trigger Article 50 of the Treaty on European Union and start the formal process of withdrawal from the EU. The second, The European Union (Withdrawal) Act 2018, prepares the UK’s statute book for Brexit by incorporating the acquis of EU law into domestic law. The third, the Withdrawal Agreement (Implementation) Bill (the WAIB), will implement the provisions of the withdrawal agreement into UK law.

17.06  The EU and the UK hope to reach an agreement under Article 50 on the terms of the UK’s withdrawal from the EU. The Withdrawal Agreement will provide protections for the rights of EU citizens currently resident in the UK, and vice versa, detail the UK’s financial settlement with the EU, and will set out a backstop mechanism to prevent a hard border between the Republic of Ireland and Northern Ireland. It will also provide for a transition (or implementation) period lasting until the end of 2020, during which, for most purposes, EU law will continue to apply in the UK and in the EU as if the UK were still a Member State. It is this arrangement which the WAIB is required to implement.

III.  How Will Transition Work?

17.07  In March 2018, the EU and the UK agreed on text to be included in the Withdrawal Agreement governing the transition (or implementation) period from the UK’s withdrawal to the end of 2020. This aims to ensure that individuals and businesses can continue to rely on single market rules and other EU law during this period in much the same way as today. Under this text, during the transition period EU law ‘shall be applicable to and in the United Kingdom’ and ‘shall produce in respect of and in the United Kingdom the same legal effects as those which it produces within the [EU]’. Any reference to Member States in EU law, ‘including as implemented and applied by Member States, shall be understood as including the United Kingdom’.

17.08  For these purposes, references to EU law include the EU treaties and all EU legislation, including legislation adopted and coming into effect during the transition period, with only limited exceptions. The UK will cease to have institutional or voting rights in the EU during the transition period.

17.09  Applicable EU law will be interpreted and applied in the same way as within the EU and the European Court of Justice (ECJ) will have jurisdiction, as it does today.

17.10  The UK will continue to be bound by the EU’s obligations under its international agreements during the transition. The EU will notify other parties that the UK is to be treated as a Member State during the period. The UK may negotiate its own trade agreements (p. 394) during the transition period, but they cannot take effect until the end of the period without EU approval.

17.11  Before UK ratification of the Withdrawal Agreement, there will also be a scrutiny process under the Constitutional Reform and Governance Act 2010. The Government will lay the agreement before both Houses of Parliament for a period of twenty-one sitting days and may only proceed to ratification if neither House has resolved that the agreement should not be ratified (though the Commons can override the Lords). After the Withdrawal Agreement Bill has been enacted and the process under the 2010 Act is completed, the Government can ratify the Withdrawal Agreement, bringing into force the transition period.

IV.  Enacting Transition

17.12  The UK has what is known as a ‘dualist’ system of public international law. Under a dualist system, the state may enter into international treaties, but these treaties only take effect as a matter of domestic law if they are adopted by the national legislature. Consequently, although the UK may have left the EU through the operation of Article 50 of the EU treaty, this will only take effect as a matter of domestic UK law once the Article 50 settlement has been enacted into domestic law by parliament. Consequently, although the UK government has served the Article 50 notice, the question of when EU law ceases to have effect in the UK is determined by UK domestic legislation. The relevant UK legislation is the European Union (Withdrawal) Act 2018, enacted after considerable parliamentary gymnastics in June 2018. This Act repeals the UK act which renders EU law effective in the UK (the European Communities Act 1972) as of the defined ‘exit date’. This was specified in the original Act as 29 March 2019. This has been altered twice, and the exit date as at the time of writing is specified as 31 January 2020. On the exit date, EU law will cease to apply to the UK.

17.13  The question, of course, is as to what happens next. What is currently proposed is that there should be a transition period extending from 31 January 2020 to a date currently expected to be 31 December 20202. During this period the UK will undertake to apply EU law, including new EU legislation, and to recognize the jurisdiction of the Court of Justice of the EU, as if the UK were still a member of the bloc.

17.14  The mechanism for achieving this will be a Withdrawal Agreement Act (currently a bill), which ‘will amend the EU (Withdrawal) Act 2018 so that the effect of the ECA is saved for the time-limited implementation period.’ The Bill will modify the saved provisions of the ECA, so that the UK’s obligations to apply EU law are determined by the Withdrawal Agreement, rather than as a Member State. It will also allow for changes to UK laws during the transition period to reflect the fact that the UK is no longer a Member State (e.g. to read references to Member States as references to Member States and the UK).

(p. 395) 17.15  The message from the UK Government is that nothing will change during the transition period. Individuals and businesses will continue to be able to rely on EU law as they did when the UK was a member of the EU.

17.16  But this is contingent on the UK and the EU concluding the Withdrawal Agreement. Until the Withdrawal Agreement is in place, the Government will continue to plan for a ‘no-deal’ scenario by using the powers under the EU (Withdrawal) Act to prepare the UK’s statute book for the UK’s exit from the EU.

17.17  That Act gives the Government wide-ranging powers to remedy deficiencies in UK law arising from the UK’s withdrawal from the EU, where provisions are no longer workable given the UK’s new status outside the EU. The Government has already begun the process of publishing statutory instruments amending the UK statute book and conferring powers on UK regulators to amend their own rulebooks as necessary. These are drafted on the assumption that there is no transition period and the resulting changes to UK law largely take effect on ‘exit day’.

17.18  The Withdrawal Agreement Bill will therefore amend the EU (Withdrawal) Act so that the ‘onshoring’ of EU law into UK domestic law takes place at the end of the transition period (instead of ‘exit day’). It will also allow the Government to correct deficiencies in UK law arising from the transition period coming to an end, as well as those arising from withdrawal itself.

17.19  The EU (Withdrawal) Act includes a sunset clause so that the Government’s powers to amend the UK statute book expire on 29 March 2021. This would only give three months to correct deficiencies that become apparent after the end of the transition period, and the Withdrawal Agreement Bill will therefore extend these powers until the end of 2022. This may be controversial, given Parliament’s reluctance to agree these wide-ranging powers in the first place, and Parliament may seek further oversight or control of these measures.

17.20  Thus, the structure of English law post-Brexit will simply reflect the fact that the EU regulations in place at the time of Brexit will be retained as UK domestic law. The result of this will be the adoption of EU regulations into UK law. Thus, for example, the Markets in Financial Instruments Regulation (MiFIR) will be adopted as a UK law (MiFIR(UK)), subject to such changes as may be necessary—thus, for example, discretions which under MiFIR are exercisable by ESMA will be exercisable under MiFIR(UK) by the Financial Conduct Authority (FCA). Directives, of course, do not need to be adopted in this way, since they should already be implemented into national law. During the transition period, retained UK law will march in step with EU law. However, thereafter the UK and the EU may well amend their laws in different directions.

17.21  The relevant amendments to UK law and retained EU regulations are made by the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019. These amend those parts of the Financial Services and Markets Act (FSMA) 2000 which implement the Prospectus and Listing Directives. Perhaps (p. 396) surprisingly, these do not make the relevant amendments to the Prospectus Regulation. This is because the Prospectus Regulation is currently ‘in force’ but not ‘in effect’ (Art. 49, Prospectus Regulation)—in July 2017 the Prospectus Regulation came into force, and certain provisions have applied since July 2017 and July 2018, with the remainder of the legislation applying from July 2019. The EU (Withdrawal) Act will only convert EU legislation into UK law that is in force and applies immediately before exit day. Thus, the Prospectus Regulation will be amended at some point between exit day and the day when it commences (21 July 2019).These measures will be introduced under the Financial Services (Implementation of Legislation) Act 2019, which gives the UK authorities the power to introduce and amend EU legislation which comes into effect after exit day but which was ‘in flight’ (i.e. had been formally proposed by the Commission) prior to exit day.

17.22  The key to Brexit in this regard is that from an English law perspective the EU will be treated like any other third country. Thus, for example, the UK rules which permit third-country prospectuses to be approved as a UK prospectus5 will apply equally to EU and non-EU prospectuses.

V.  Listing Documents and Prospectuses

17.23  It is also worth noting at this point the difference between a listing document (sometimes referred to as listing particulars) and a prospectus. A prospectus is the document which is required when securities are offered to the public. A listing document is the document which is required when securities are admitted to listing. Usually the two coincide—thus, where an offeror offers new securities to the public and seeks a listing for those securities, the offering document performs both functions. However, there are cases where new securities can be created without being the subject of a public offer (e.g. where shares are issued to employees under an employee share scheme), and in these cases the document to be prepared functions as a listing document but not as a prospectus.6 Conversely, there are situations where securities are offered to the public without being admitted to listing, and in such cases the document is a prospectus but not a listing document.

17.24  The reason this matters is that both documents are mandatory. It is prohibited to offer securities to the public without preparing a prospectus and having it approved by a relevant competent authority,7 and no securities may be admitted to listing on an EU-recognized investment exchange without a listing document having been approved in the same way.8

(p. 397) 17.25  Thus, there are two functions which are performed by an offering document. One is that securities can only be publicly offered in the EU if an appropriate document is approved by a regulatory authority. The other is that an offering document may be required when new securities are admitted to trading on a regulated securities market. These two functions are independent—it is perfectly possible to offer securities to the public without having them admitted to trading in any regulated exchange, and equally possible to create new securities and admit them to listing without offering them to the public (a bonus share issue by a listed company is an example of this). Technically, a document which permits offer to the public constitutes a prospectus, and a document which relates solely to admission to listing constitutes listing particulars. However, it should be noted that only a security which has been the subject of a prospectus offer may be admitted to trading on a Markets in Financial Instruments Directive9 (MiFID)-recognized exchange. Regulated market for this purpose has the meaning given to it in Article 4(1)(21), MiFID, where it is used in contradistinction to multilateral trading facilities (MTFs).

17.26  This distinction becomes important in the context of Brexit. It is very common for securities listed on EU markets to be placed with UK-based investors (or, more accurately, with investors whose assets are managed in the UK). If (for example) a French issuer wished to list in France and offer in the UK, prior to Brexit a single document would have done both jobs. However, in the post-Brexit world, such an offer would require the French listing document to be filed with the UK authorities as a UK prospectus in order to permit a public offer of securities in the UK. Possibly more importantly, a French offer done under a French programme would require either for there to be a pre-existing UK programme, or for a separate UK document containing both programme and termsheet documents to be created—a task which would obviate the speed advantages obtained by the creation of a programme document in the first place. Since there is currently insufficient liquidity in the EU27 to accommodate such offers, this may result in a reconsideration by issuers of the location of their listings. In this regard, it is important to note that when the UK leaves the EU, there will be no difficulty in managing parallel documents submitted to both UK and EU authorities.

VI.  When is a Prospectus Required?

17.27  One of the more interesting issues surrounding prospectus regulation is the question of which securities require a prospectus to be created in the first place, and when. In broad terms, prospectus requirements apply when a security is offered to the public. This raises three preliminary issues; ‘What is an “offer to the public”?’, ‘What is a “security”?’, and ‘When is one “offered to the public”?’.

(p. 398) VII.  A Security

17.28  A ‘security’ for this purpose means anything which falls within the MiFID definition of transferrable securities and is not a money market instrument (broadly an instrument with a maturity of less than twelve months). However, there is a number of instruments which would conventionally be classed as a security but which are excluded from this definition. The most significant of these is units in collective investment schemes—these are broadly covered by the Undertakings for the Collective Investment in Transferable Securities (UCITS) directive or the Alternative Investment Fund Managers Directive (AIFMD)—and government securities (including government-guaranteed securities and securities issued by regional or local authorities). It is also worth mentioning that the requirement only bites if the security is transferrable. In the UK post-Brexit, this position will remain unchanged, since the transposed Prospectus Regulation will continue to refer to the transposed MiFIR regulation.

VIII.  Public Offer

17.29  The definition of ‘offer to the public’ in EU law is particularly confused. As it stands, it reads ‘a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities’. This definition is a logical nonsense, since it implies that if an offeror deliberately presents investors with a document which is sufficiently lacking in information or does not contain the relevant information, then it will not constitute a prospectus at all, and those preparing it will therefore escape prospectus liability. This definition also applies to the placing of securities through financial intermediaries, which in turn may escape liability of they are insufficiently informative.

17.30  What makes an offer a ‘public’ offer is set out in legislation. There is a de minimis level of offering—EUR 1m in any twelve-month period—below which no prospectus is required (although Member States may regulate such offers in other ways). Member states are also permitted to derogate from the Prospectus Regulation by exempting offers where the total amount of the offer is less than EUR 8m.10 However, the key distinction here is between ‘public’ and ‘private’. A private offer for this purpose is one which is made:

  • –  by a European Economic Area (EEA) Member State;

  • –  to fewer than 150 people per EEA state;

  • (p. 399) –  to an audience composed solely of ‘qualified investors’. For this purpose, qualified investor means (broadly) professional clients and market counterparties as defined under MiFID;11

  • –  in denominations of at least EUR 100,000;

  • –  to existing holders of securities issued by the same issuer—this includes substitution issues, share dividends, takeover offers, and shares offered in connection with a merger or division;

  • –  to employees of the issuer.

17.31  The effect of the UK leaving the EU is that the UK test will no longer consider offerings outside the UK in determining whether an offer is a public offer for UK law purposes. Thus (for example) an offer to 149 people in the UK will not be a public offer in the UK, no matter how many other offerees there may be in the EEA.

17.32  One of the more interesting aspects of the new UK regime is that the UK has extended the exemption afforded by the Prospectus Regulation to EEA Member State offerors to sovereign states generally. This means that non-EEA Member States such as Australia and New Zealand, who previously were required to publish a Prospectus Directive-compliant prospectus in order to obtain a London listing, will now no longer be required to do so.12 The basis for this is reasonably straightforward—the argument that states produce sufficient public information about their own affairs that it is supererogatory to require them to produce a prospectus is clearly as true of non-EEA states as it is of EEA states.

IX.  Listing Particulars

17.33  Finally, going back to the function of a prospectus as a listing document, there are certain situations in which securities are permitted to be admitted to listing on a regulated market without a prospectus being required. These exceptions are, by definition, only relevant where the securities concerned have been privately placed—if they had been publicly offered, then a prospectus would have been required in any event. They are:

  • –  an increase of up to 20 per cent in the number of already listed securities in any twelve-month period, whether arising from new issuance, exchange, the exercise of conversion rights, employee share option schemes, or a write-down of existing (p. 400) bank-issued instruments as part of a resolution under the Bank Recovery and Resolution Directive (BRRD);

  • –  shares issued as part of a takeover offer, merger, or division;

  • –  shares received pursuant to an in specie dividend;

  • –  securities which have been admitted to another EU-regulated market for a period of eighteen months or more and were initially the subject of a prospectus offer. If this approach is taken, a summary (but not a prospectus) must be published at the time of the new offering, directing holders to the most recent prospectus published.

Technically, the UK listing authorities will be permitted to deal with such cases in any way that they wish after Brexit.

17.34  It should be noted that it is possible to ‘opt in’ to the prospectus regime even where one of these exemptions applies. If an issuer opts into the prospectus regime, the resulting document creates the same legal rights and obligations as if it were required.13

17.35  Equity securities means shares and any instrument which permits the holder to acquire equity securities either through conversion or through exercise of rights. However, in the latter case only instruments issued by the same issuer are caught—thus, an equity warrant issued by a company (or a member of its group) entitling the holder to acquire shares is ‘equity’ for this purpose, but a warrant issued by a third party is not.

X.  Home Member State

17.36  The ‘home Member State’ under the Prospectus Regulation is the state where a particular issuer’s offering documents should be submitted unless an exemption applies. For EU equity issuers, the home Member State is simply the state where the issuer has its registered office. For non-equity issuers, however, provided that the denomination is over EUR 1,000 (or equivalent in other currencies), the home Member State may be (i) the Member State where the issuer has its registered office; (ii) the Member State where the public offer was made; (iii) the Member State where the securities concerned are to be admitted to trading on a regulated market, at the election of the issuer. Non-EU issuers are also allocated a ‘home’ Member State; for them, this is the state where securities are intended to be offered to the public for the first time or where the regulated market on which the application for listing is made is located.

17.37  The departure of the UK means that any issuer whose home Member State is the UK will simply lose that designation. It must therefore select a new home Member State from among the EU states. However, this choice is not unconstrained—it may only select from among those states in which it has either made an offer or applied for admission (p. 401) after the withdrawal date, or those states in which it has securities admitted to listing before the withdrawal date and those securities remain listed after the withdrawal date. For an EU issuer who satisfies neither of these criteria, the first EU application which it makes after the withdrawal date will determine its home Member State. An issuer incorporated in the UK, or who has elected for the UK to be its home Member State, has three months after the withdrawal date to notify ESMA of its choice of a new EU home Member State.14

XI.  Reoffers and Cascades

17.38  One of the more complex issues which arises as regards publicly offered or listed securities is as to what the position should be if they are made the subject of a subsequent offer. This could happen if, for example, a corporation which had acquired a significant minority stake in a listed company by buying shares on exchange decided to reverse its strategy and sell the shares it had acquired. Should the resulting public offering be the subject of a prospectus requirement? The Prospectus Regulation is clear that it should—‘Any subsequent resale of securities which were previously the subject of [a prospectus offer] shall be considered as a separate offer.’15 This appears to be a nonsense—if securities are offered to underwriters, who in turn sell them to brokers, who sell them to end-investors, it would seem a bit odd to require three different prospectuses for what is effectively the same transaction. In practice, this problem is avoided by the use of the provision set out in the last few words of Article 5(1), by which such multi-stage offers can be conducted under the umbrella of a single prospectus provided that the person responsible for the prospectus ‘consents to its use by means of a written agreement’. In practice, this is dealt with by including such consent in the terms of the prospectus itself.

17.39  This definition was adopted against the wishes of the UK, which took the view that the provisions in the previous version of the Prospectus Directive (to the effect that once securities had been the subject of a prospectus offer, no further prospectus was needed for any subsequent offer) were the correct policy approach. However, it seems likely that this definition will be retained by the UK for the immediate future.

17.40  This raises the interesting question as to what should happen if a public offer made in the EU is distributed by distributors in the UK, and vice versa. In theory, this should require the document to be double-recognized by both sets of competent authorities, since a UK distributor will not be able to claim that an EU document satisfies the UK requirements, and vice versa.

(p. 402) 17.41  In practice, most offers of debt securities are in practice made only to qualified investors in order to ensure that the prospectus requirement is not triggered. This does, however, lead to a further question—what if the qualified investors subsequently on-sell the securities? Ordinarily, the test that would be applied would be applied at the level of each individual on-sale. However, where the qualified investors concerned are financial intermediaries, and the securities are placed with those financial intermediaries for the purpose of on-sale, the entire offering is treated as a single placing. However, the intermediaries are relieved from the necessity of preparing a prospectus themselves, provided that a prospectus has been drawn up and the person responsible for the prospectus consents to its use for this purpose.

17.42  However, in this regard it should be noted that it is only admission to the main list of a recognized exchange which is presumed to be a public offer. The mere admission of securities to an MTF, or the publication of bid and offer prices for the securities by (for example) a systematic internalizer does not automatically constitute an offer of securities to the public,16 and therefore does not automatically trigger a prospectus requirement. Thus, if securities which are offered in the EU are admitted to trading to an MTF in London, that admission will not trigger a prospectus requirement in the UK.17

XII.  Offer Document Content

17.43  It is always difficult to determine what should be in a prospectus—the overriding obligation to include ‘all such information as investors and their professional advisors would reasonably require, and reasonably expect to find there’18 gives an extraordinarily wide discretion to listing authorities to require disclosure. However, it is important to note that this requirement may be fact-specific, but may not be generic—the UK has retained the requirement that the FCA, acting as listing authority, may not require a prospectus to contain information which is not included in Annexes I–XVII or XX–XXX of the Prospectus Regulation.19

17.44  The most important part of the content requirements of any prospectus is the financial accounts presented therein. The EU currently has its own rules both as to the format of accounts20 and as to accounting standards21—the latter are based on, but not identical to, International Financial Reporting Standards (IFRS). The UK will, on exit from the EU, adopt what it describes as UK accounting standards.

(p. 403) 17.45  For UK offerings, the UK will cease to refer to EU accounting standards, and will refer to ‘UK-adopted Accounting Standards’, defined as those standards recognised under s. 474(1) of the Companies Act 2006. Again, immediately upon Brexit, these standards will reflect the EU standards. However, if the EU decides to diverge from IFRS on any particular point in the future, it is likely that the UK will follow the IFRS rather than the EU standard.

1.  The Summary

17.46  The Summary is the newest and most controversial part of the offer process. The summary is required to be a short document (no longer than seven sides in printed form), to be ‘written in a concise manner’22 in language which is ‘clear, non-technical, concise and comprehensible for investors’.23 However, it is also required to provide all of the ‘key information that investors need in order to understand the nature and the risks of the issuer, the guarantor and the securities that are being offered or admitted to trading’.24 Given that the section of the Regulation which sets out the headings for this document (Arts 7(4)–(13)) runs to nearly 2,000 words, the scale of the challenge presented by this requirement can be clearly seen. Where a product is subject to PRIIPs,25 the issuer may choose (or the relevant home authority may demand) that the content of the key information document (KID) required by the regulation be substituted for part of the required content of the summary.26

17.47  Again, for the time being the UK will retain the PRIIPs requirements. However, the UK’s dissatisfaction with PRIIPs is well known, and it is not clear that an EU issuer with a PRIIPs-compliant document will necessarily be able to simply use that document in place of a summary in a UK prospectus.

2.  The Base Prospectus

17.48  There are two forms here—base prospectus plus final terms, to be used or debt securities and warrants, and base prospectus plus securities note, to be used for equities.

17.49  The aim of this legislation, when initially enacted, was to replicate the practice which had grown up in the bond markets27 of programme issuance. In a programme issuance, (p. 404) the issuer prepares a programme document which contains details of both the issuer and the general terms of the securities which the issuer may wish to issue under the programme. The programme document was intended to be updated whenever new information became available (and once a year in any event), and to be approved by the authorities on these occasions. This meant that for an actual issue, the only document which required to be created was a short one- or two-page pricing supplement identifying the type of security to be issued and the specific numerical characteristics (term, yield, etc) required. It is fair to say that the attempt was a spectacular failure. This is primarily because the authorities took the view that the pricing supplement should contain sufficient information to be capable of being read in isolation, and inflated its content requirements to the extent that it became almost a fully fledged offer document in its own right. The only vestige of the original concept left in the regulatory system is that listing authorities generally take slightly less time to approve a securities note in relation to an existing base prospectus than it would to approve an entirely new prospectus in respect of such securities.

17.50  Base prospectuses may only be prepared in respect of debt issues,28 although they may be prepared in respect of ‘warrants in any form’. For a base prospectus offering, the base prospectus may contain a form of final terms, setting out all the available options applicable for individual issues under the document.

17.51  The relevance of this as regards Brexit is the relatively straightforward one that for prospectuses passported into the UK before ‘exit day’, the Regulations provide that such prospectuses will be deemed to have been approved by the UK’s FCA on the same date as they were approved by the relevant European competent authority. In this way, any prospectus passported into the UK before ‘exit day’ will be grandfathered for use in the UK until its validity expires. More importantly, any supplements relating to a passported prospectus or drawdown prospectus thereunder to be published after ‘exit day’ will need to be approved by both the competent authority of the relevant EU27 home Member State (which originally approved the prospectus) and by the FCA; and any final terms issued under such passported prospectus after ‘exit day’ will need to be filed and published not only with the competent authority of the home Member State but also with the FCA.

XIII.  Language

17.52  One of the most difficult issues for the European capital markets is the issue of language. A Member State could well argue that investors in its jurisdiction would be at a disadvantage if the prospectus were not available in their language, and that it should not be possible to use a prospectus to distribute securities in a country unless the prospectus (p. 405) had been translated into the language of that country. However, as the Prospectus Regulation observes, ‘The obligation for an issuer to translate the entire prospectus into all the relevant official languages discourages cross-border offers or multiple trading.’29 This issue was dealt with in the Prospectus Directive30 through Article 19, which provides that where an offer is made (or admission to listing is sought) only in one Member State, then the authorities in that Member State should determine the language to be used, but that where an offer is made in more than one Member State, then the offer may be made in ‘a language customary in the sphere of international finance’ (i.e. English), but that the competent authority in any Member State might require that the summary is translated into its official language.31 Consequently, Member State authorities are only permitted to require that the summary is translated into their home language. Some states do impose this requirement, but many do not.32

XIV.  Conclusion

17.53  Post-Brexit, it will no longer be possible to use a UK prospectus for distribution of securities in the EU. However, since the majorities of securities offered on the UK markets are in fact sold to UK or international (non-EU) investors, it is difficult to know whether the consequence of this will be an increase in EU prospectus offerings (in order to maximize the potential investor base) or a decrease (on the basis that the incremental cost of increasing the investor base by 10 per cent or so by incurring the costs of filing an EU prospectus may be uneconomic). In reality, the point is that there is a relatively well-established prospectus orthodoxy in the international securities markets, and as long as the EU regime remains closely aligned with that international orthodoxy, it is likely that the incremental cost of adding an EU limb to a global offering will remain acceptable. However, if EU disclosure standards diverge from international standards, the issue will become more acute, and issuers may find themselves having to choose between a domestic EU offering and an international offering.(p. 406)


1  Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC, [2017] OJ L168/12 (Prospectus Regulation).

2  This process has been ongoing for a long time. The first European measure in this regard was the Council Directive 79/279/EEC of 5 March 1979 coordinating the conditions for the admission of securities to official stock exchange listing. This was followed by the Council Directive 80/390/EEC of 17 March 1980 coordinating the requirements for the drawing up, scrutiny, and distribution of the listing particulars to be published for the admission of securities to official stock exchange listing, the Council Directive 82/121/EEC of 15 February 1982 on information to be published on a regular basis by companies the shares of which have been admitted to official stock-exchange listing, and Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major holding in a listed company is acquired or disposed of. These measures had some coordinating effect, but were broadly unsuccessful in breaking down barriers to cross-listing. The first real progress in this area was the Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities (Listing Directive) and the Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive).

3  The Prospectus Directive was the twin of the Directive/34/EC on the admission of securities to official stock exchange listing and on information to be published on those securities.

4  Commission regulation 809/2004/EC as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements.

5  Made under s 84(6), Financial Service and Markets Act (FSMA) 2000.

6  In such cases, the shares concerned are required to be admitted to listing—Article 64, Listing Directive.

7  Article 3(1), Prospectus Regulation.

8  Article 5, Listing Directive.

9  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU Text with EEA relevance.

10  Article 3(2), Prospectus Regulation.

11  Strictly:

persons or entities that are listed in points (1) to (4) of Section I of Annex II to [MiFID], and persons or entities who are, on request, treated as professional clients in accordance with Section II of that Annex, or recognised as eligible counterparties in accordance with Article 30 of [MiFID] unless they have entered into an agreement to be treated as non-professional clients in accordance with the fourth paragraph of Section I of that Annex.

12  Article 2.23, Prospectus Regulation (UK).

13  Article 4, Prospectus Regulation.

14  See ESMA, ‘The European Securities and Markets Authority (ESMA) has issued today three Questions and Answers (Q&As) regarding the Prospectus Directive (PD) and the Transparency Directive (TD)’, 31 January 2019.

15  Article 5(1), Prospectus Regulation.

16  Recital (14), Prospectus Regulation.

17  Section 102B (5)(b), FSMA.

18  Section 80, FSMA.

19  Article 3, Prospectus Regulation (UK).

20  Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

21  Regulation (EC) 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

22  Article 7(3), Prospectus Regulation.

23  Article 7(3)(b), Prospectus Regulation.

24  Article (7)(1), Prospectus Regulation.

25  Regulation (EU) 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).

26  Article 7(7) first unlettered paragraph, Prospectus Regulation (i.e. immediately after article 7(7)(d)—the logic of paragraph numbering in EU legislation remains an unexplored wilderness).

27  Even for investment funds who issued listed shares (misleadingly known in the UK as ‘Investment trusts’), the use of programme documents for equity issuance, although permitted, very rarely occurred.

28  Article 8(1), Prospectus Regulation.

29  Recital (68), Prospectus Regulation.

30  Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading.

31  It should be noted that English will remain the official language of both Ireland and Malta after the UK’s departure, so English will remain an EU language.

32  For a complete review of language requirements, see ESMA, Information Note ‘Languages accepted for the purpose of the scrutiny of the Prospectus and requirements of translation of the Summary’, ESMA/2014/342, 31 March 2014.