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Welcome to LEGAL LONG, a briefing on a relevant issue in the financial services industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406

ESMA final report on technical advice under new Prospectus Regulation

The Prospectus Regulation came into force on 20 July 2017 and is being phased in to replace the existing Prospectus Directive. The majority of the Prospectus Regulation’s provisions will apply from 21 July 2019, save for some specific provisions that applied from 20 July 2017 or will apply from 21 July 2018.

The progress of this legislation has taken a number of steps. ESMA received a mandate from the European Commission to provide technical advice on the possible delegated acts concerning the new Prospectus Regulation including those in relation to the base prospectus and final terms, the content, format and sequence of the EU Growth prospectus and the scrutiny, and approval of prospectuses and their constituent parts, and the filing and review of the universal registration document. Further to that mandate, ESMA published three consultation papers on the draft technical advice on the format and content of a prospectus, base prospectus (also known as offering circular or information memorandum) and final terms under the new Prospectus Regulation.

ESMA recently published its final report on the technical advice under the new Prospectus Regulation. In this report, ESMA notes that a main goal of the new Prospectus Regulation is to simplify the structure of the prospectus and minimise costs of issuing capital alongside investor protection. Below is a summary of ESMA’s final report.

1. Format of the prospectus, base prospectus and final terms

Cover note: ESMA has withdrawn its proposal for a mandatory cover note. However, if a cover note is voluntarily included in the prospectus, the page length should be limited to three sides of A4-sized paper.

How to use the prospectus" section in base prospectus: ESMA has removed the requirement for a mandatory "how to use the prospectus" section. Issuers can include such a section on a voluntary basis.

Location of risk factors: the risk factors section should remain at the beginning of the prospectus after the summary or, in the case of a base prospectus, after the general description of the programme.

Ordering of URD: the placing of the section on risk factors is at the issuer’s discretion in the universal registration document (URD), provided that there is a distinct section on risk factors in accordance with item 3 of Annex 1 (Risk Factors). Frequent issuers have the option to draw up and publish every financial year a URD containing, among other things, legal, business, financial information and a description of the issuer. Issuers who publish a URD benefit from an accelerated prospectus approval process of 5 working days, as the URD has already been approved, or is available for review.

"Use of proceeds" section: ESMA has decided to withdraw the requirement for a stand-alone use of proceeds section.

2. Share registration document

National Competent Authority (NCA) approval: the scope of the NCA’s approval should be included and placed prominently in the prospectus or in the cover note.
Website address: the requirement is to disclose the issuer's website address, if available, rather than to state that an issuer itself must have one.
Profit forecasts: outstanding, previously published profit forecasts and profit estimates, must be disclosed on the basis of the materiality of such valid outstanding reports, in the context of an equity issuance only.
Size of shareholdings: requirement to disclose the size of shareholdings pre and post issuance, where a major shareholder is selling down their holding.
Historical financial information: reversion to the previous wording "historical financial information".

3. Share securities note
​​​​​​​Risk factors wording: inclusion of "negative impact" wording to align with the requirement that risk factors are assessed according to the expected magnitude of their negative impact.
​​​​​​​Stabilisation: the wording has been extended to include other types of markets.

4. Registration document for securities issued by third countries and their regional and local authorities

Gross domestic product is suitable metric relevant for third countries.

5. Building block pro former financial information

​​​​​​​Significant assumptions: accompanying notes explaining significant assumptions used in developing the pro forma adjustments has been deleted.
​​​​​​​Financial statements of the acquired business: the financial statements and interim financial statements of the acquired business required to be included in the pro forma information are those used for the preparation of the pro forma financial information.
​​​​​​​Significant effects: pro forma adjustments must present all significant effects "of the transaction".

6. Schedule on depositary receipts issued over shares

Depository receipts are sufficiently similar to shares and accordingly warrant a requirement for the disclosure of pro forma and complex financial history information.

7. List of specialist issuers

The need for further guidance in relation to specialist issuers and the term "Start-up companies" is under consideration.

8. Content of universal registration document

No changes in relation to the content of the URD.

9. Content of the secondary issuance regime

​​​​​​​Statement of compliance: no requirement of a statement confirming compliance with the Transparency Directive (“TD”) and Market Abuse Regulation (“MAR”) to the National Competent Authority as part of the prospectus approval process.
​​​​​​​Financial statements. the issuer shall include financial statements that are required to be published.
​​​​​​​Single regime: there was no support for a different secondary issuance regime for regulated markets and SME Growth markets.
​​​​​​​Corporate governance: the proposed disclosure item in relation to corporate governance was deleted.

10. Content and format of the EU Growth prospectus

Issuers are free to include environmental, social and governance (“ESG”) related disclosures in the EU Growth prospectus however, no mandatory inclusion of a specific disclosure item in relation to ESG topics.

11. Format of the EU Growth prospectus

The parts to an EU Growth prospectus, and the order of those parts, are as proposed in the draft technical advice, save that:
  • Documents available: a new part detailing "Documents available", will be required.

  • Cover note: a cover note shall not be mandatory but may be included at the discretion of the issuer. Where an issuer chooses to include a cover note, it should be a maximum of three sides of A4-sized paper.

12. Content of the EU Growth registration document

The final technical advice includes separate schedules for equity and non-equity issues. A number of changes have been made to the content requirements for the registration document. These include:
  • ​​​​​​​​​​​​​​​​​​​​​Profit forecasts: outstanding profit forecasts must be included in EU Growth prospectuses for equity issues only. However, a non-equity issuer should consider whether, in the circumstances, an outstanding profit forecast constitutes information that should be disclosed in the prospectus in accordance with Article 6 of the Prospectus Regulation (Responsibility attaching to the prospectus).

  • Borrowing requirements: information on the issuer's bor​​​​​​​rowing requirements and funding structure shall apply to non-equity issuers as well as equity issuers.

  • Information on control: the items regarding ownership and control and arrangements which may result in or prevent a change of control will apply to equity issuers (not just non-equity issuers).

  • Regulatory environment and constitutional documents: a number of disclosure items have been removed - regulatory environment and certain information concerning the memorandum and articles of association.

  • Organisational structure: organisational structure information shall be required if not included elsewhere in the registration documents.

  • Investments: information on past investments shall only be disclosed to the extent not presented elsewhere in the prospectus and the requirement for the description of the geographic distribution is removed.

  • Operating and financial review: operating and financial review disclosure item has been amended to align it with the content of the management report under the Accounting Directive and the requirement for the disclosure of the causes of material changes is retained.

  • Management bodies: information on companies and partnerships of which such persons have been members of the administrative, management or supervisory bodies or partner is limited to a three (rather than five) year period.

  • Remuneration: this information does not need to be replicated if it is disclosed elsewhere in the registration document.

  • Share capital: the history of share capital disclosure requirement only applies to a period of 12 months prior to approval of the prospectus.

  • ​​​​​​Dividend policy: a negative statement is required if an issuer does not have a dividend policy.

  • KPIs.: required disclosure of KPIs in the prospectus where the issuer has published them or chooses to include them in the prospectus.

13. ​​​​​​Content of the EU Growth securities note

The disclosure requirements for the securities notes are unchanged from the requirements set out in the draft technical advice.

14. Content of the EU Growth summery

The modifications to the draft technical advice, along with key points to note, are set out below:
  • ​​​​​​​​​​​​​​Re-ordering: the order of the sections has been modified.

  • Summary length: the maximum length of the summary will remain at six sides of A4-sized paper.

  • Underwriting: where the offer is underwritten on a firm commitment basis, any portion not covered must be stated.

  • Risk factors: the total number of risk factors to be included has been increased to 15.

  • Financial information: the requirement is for the disclosure of financial measures which provide information to investors in relation to the issuer's revenue, profitability, assets, capital structure and, where included in the prospectus, cash flows and key performance indicators.

  • Pro forma financial information: the requirements for disclosure of pro forma financial information in the summary, where such information is disclosed in the prospectus, has been retained.

15. Scrutiny and approval of the prospectus

In relation to the role of the NCA, ESMA highlights that when an NCA chooses to look at information outside the prospectus, the NCA is not "scrutinising" this information according to the criteria in the proposed Article A (now Article N). ESMA has amended the proposed Article B(1) (now Article O(1)) to clarify this stating the NCA may "apply criteria to the information given in the draft prospectus beyond those laid down in Article N”. ESMA clarifies that the proposed technical advice is intended to cover all types of prospectuses, except where an express reference is made to a specific type of prospectus or constituent part of the prospectus.

16. Scrutiny of the prospectus and scrutiny and review of the URD

Completeness criteria: ESMA intends to ensure that the information requirements are clearly addressed by the completeness criteria.

Comprehensibility criteria: writing the prospectus in plain language rather means clearly presenting potentially complex information to maximise investors’ ability to understand it. In ESMA's view plain language means language that is understandable to retail investors.

Consistency criteria: ESMA acknowledges that use of the term "aligned" may give the impression that information in different parts of the prospectus should be formulated in the exact same way which is not the intention. Therefore, the technical advice has been amended to refer to "in line" instead.

Scrutiny and review of URD: ESMA clarifies that if the NCA decides not to review the URD, it will instead be required to scrutinise the URD if it is intended for use as a constituent part of a prospectus.

17. Approval of the prospectus and approval and filing of the URD​​​​​

​​​​​​​Amendments to existing procedures: issuers may, where required by or agreed with the NCA, submit the final version of the prospectus in paper form.

Issuers should be permitted to not resubmit information (i) if it has already been approved or filed under the Prospectus Directive or Prospectus Regulation or (ii) if it is included in the list in Article 19(1) and has been approved or filed with the NCA.

ESMA has decided to remove the requirement to provide a statement of compliance with the TD and MAR for issuers using the secondary issuance regime.

The proposed third recital has been redrafted to provide issuers with more flexibility in terms of how they communicate the changes to the NCA.

Appendix: issuers permitted to choose their own home Member State will be able to passport on a standalone basis (not only a registration document in accordance with the retail debt and derivatives schedule but also in accordance with other registration document schedules).

URD approval procedures: the requirement for the TD/MAR compliance statement to be resubmitted along with the final draft of the URD has been deleted.

URD filing procedures: removal of the obligation for issuers to confirm whether the URD is being used to fulfil publication obligations under the TD.

18. Conditions for losing the status of frequent issuer

As set out at consultation, ESMA remains of the view that there is no scope to define additional conditions for losing the status of frequent issuer.

19. Next steps

The report has been delivered to the European Commission. Subject to endorsement by the Commission, this technical advice will form the basis for the delegated acts to be adopted by the Commission by 21 January 2019.

We have taken great care to ensure the accuracy of this document. However, it is writen in general terms, is for general guidance and does not constitute advice in any form. You are strongly recommended to seek specific advice before taking any action based on the information it contains.

No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication.

Nothing within this document may be copied, re-printed or similar without prior writen permission from Cummings Law Ltd.



Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

22 04 2019

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