The proposals form a package of measures designed to promote UK capital raising.
On 26 July 2024, the FCA published consultation papers on a new public offers and admissions to trading regime to replace the existing UK Prospectus Regulation, and on proposals to establish public offer platforms (POPs) as a new mechanism for raising scale-up capital. These proposals form part of a package of measures to build up UK wholesale markets.
Public Offers and Admissions to Trading Regulations regime
The consultation on the new public offers and admissions to trading regime (CP24/12) is the latest milestone in reforming the UK Prospectus Regulation framework, following the FCA’s last engagement on the subject in summer 2023. The Public Offers and Admissions to Trading Regulations 2024 (POATR), enacted in January 2024, empowered the FCA to set new rules in certain areas to replace the UK Prospectus Regulation.
CP24/12 is detailed and includes the draft text of the new rules and guidance. Key proposals from the CP:
- IPO prospectuses – Issuers would still be required to publish a prospectus when first admitting securities to regulated markets.
- Further issuances – Prospectuses would not be required when an issuer raises further capital on regulated markets except in limited circumstances. In particular:
- The threshold for triggering a prospectus for further issuances of securities already admitted to trading would be increased from 20% (of existing fungible securities) to 75%. The FCA is considering whether to require issuers to notify the FCA if the further issuance relates to rescue financing (even if below the 75% threshold).
- In order to facilitate offerings into other jurisdictions, issuers may produce a voluntary prospectus approved by the FCA for issuances below this 75% threshold.
- Content requirements – Proposals around the content requirements for a prospectus include:
- Fewer prescribed content requirements for the summary section and an increase in the mandatory page limit for the summary from 7 pages to 10.
- Incorporation by reference would be permitted but not mandatory.
- The FCA is considering whether to modify the requirements for a working capital statement, such as potentially allowing issuers to disclose significant judgments made in preparing the statement, including the assumptions and sensitivity analysis.
- The FCA would publish draft guidance for issuers with complex financial histories on the financial information required for the prospectus.
- Sustainability disclosures – The prospectus content requirements would be supplemented by specific requirements and guidance around sustainability disclosures. Debt issuers would be required to disclose whether their instruments have been marketed as “green”, “social”, or “sustainable”, or issued under a bond framework or a similar document.
- Prospectus responsibility – The prospectus responsibility regime would largely be retained. The FCA does not propose to retain provisions imposing prospectus obligations on an offeror who is not the issuer, because (under POATR 2024) the obligation to produce a prospectus only arises if there is an admission to trading.
In addition, the requirement that a prospectus be made available to the public for six working days for admissions of securities at IPO would be reduced to three working days.
- Forward-looking information – Under POATR 2024, “protected forward looking statements” (PFLS) would be subject to a “recklessness” statutory liability threshold to encourage issuers to incorporate forward-looking information into prospectuses. The FCA proposes to provide a framework to give issuers legal certainty on what information can be deemed PFLS.
- “Primary MTFs” (i.e., multilateral trading facilities which allow retail participation, such as AIM) – the FCA proposes to require an MTF admission prospectus for all initial admissions to such markets and reverse takeovers (with exceptions for existing simplified routes to admission). The FCA is not proposing to require an MTF admission prospectus for further issuances.
Under POATR, a primary MTF issuer publishing a MTF admission prospectus would be allowed to offer securities to the public without having to produce an FCA-approved prospectus.
Although the FCA would set rules on certain rights and responsibilities attaching to the production of an MTF admission prospectus (including its proposals around PFLSs), the detailed content requirements and whether such documents would be required for further issuances on primary MTFs will be set by the relevant MTF operator.
Public Offer Platforms
POATR 2024 creates a new regulated activity of operating POPs — an electronic platform for implementing public offers of securities. Under POATR, companies looking to raise capital outside the public markets benefit from an exemption that allows them to raise up to £5 million from a broad range of investors. Any retail fundraising in excess of this £5 million level would need to be undertaken through a POP. As a result, under the new regime, POPs are expected to be used by unlisted companies looking to raise capital (in excess of the £5 million threshold) from retail investors.
Key proposals from CP24/13 (which includes the proposed draft rules):
- Due diligence – POP operators would be required to gather a minimum set of information prior to facilitating a public offer. These include general information on the issuer, financial information, and information on the offering.
POP operators would be required to carry out a reasonable verification exercise on the information collected, a creditworthiness assessment of the issuer, and an assessment of whether it is appropriate to facilitate the offer.
- Communication of information to investors – POP operators would be required to provide investors with a disclosure summary providing a clear description of the issuer and the public offer, and communicating the result of their due diligence.
The POP operator would also need to make available to investors certain information in addition to the disclosure summary, including recent financial accounts of the issuer.
The FCA proposes to require POP operators to implement contractual terms to require issuers to provide updates of any material changes to information since the initial disclosures. Investors would benefit from withdrawal rights if there has been material change in the information disclosed prior to the offer closing.
- Liability – the FCA is considering how legal liability and redress may apply to POP operators and issuers, including how they may link to the Financial Services Compensation Scheme (FSCS) and Financial Ombudsman Service if coverage were to be extended.
- Wider FCA Handbook rules – the consultation paper considers the wider FCA Handbook rules and regulation (such as MiFID and the consumer duty) that would apply to regulated firms undertaking POP activities and how these would interact with the proposals.
Next steps
The deadline for responding to both consultations is 18 October 2024. The FCA aims to finalise the rules for the overall POATR regime by the end of H1 2025. There would be a further period prior to the new rules coming into force when the UK Prospectus Regulation would be repealed and replaced with the new regime.
With respect to POPs, the FCA will also consider the appropriate implementation and transitional arrangements to provide firms with enough time to apply for permissions to carry on the new regulated activity and comply with the proposed rules.
