Following the publication of the Public Offers and Admissions to Trading Regulations 2024 (POAT Regulations) and the Financial Conduct Authority’s consultation paper (CP24/12) on the new prospectus rules which closed on 18 October 2024, we outline below some of the key proposed changes to the prospectus regime. The POAT Regulations delegate greater responsibility to the FCA and the majority of its provisions will come into force when the FCA finalises the new prospectus rules, expected by the end of H1 2025 (although additional time will be required before the new regime comes into force).[1]
The POAT Regulations set out the exemptions applicable to public offers of securities and the new prospectus rules will set out the exemptions to the requirement to produce a prospectus when securities are admitted to trading on a UK market.
The new rules aim to improve the competitiveness of UK markets while affording investors the protection that they need and ensuring that they have access to relevant information. The proposed changes to the prospectus rules continue the de-regulatory approach adopted by the FCA when updating the listing rules that took effect at the end of July 2024.
Public Offers
Rather than requiring publication of a prospectus for public offers, there will be a general prohibition on all public offers, subject to certain exemptions, many of which are derived from existing exemptions under the current UK Prospectus Regulation (e.g. offers to qualified investors, less than 150 persons, directors and employees).
New exemptions to the public offer prohibition will apply for offers not exceeding £5 million, offers of securities already admitted to trading on a regulated market or primary Multilateral Trading Facility (such as AIM) and offers to existing security holders (pro rata to their existing holdings).
Where no other exemption applies and the public offer exceeds £5 million, a company will be able to offer securities to the public without admitting them to a securities market if the offer is made through a regulated platform. CP24/13 published by the FCA includes draft rules for operating a public offer platform, which will be a regulated activity requiring authorisation from the FCA.
Admission to Trading on a Regulated Market
Requirement for a Prospectus
Publication of an FCA-approved prospectus will still be required on an IPO, however, the threshold for triggering a prospectus for the issue of further securities is to be raised from 20% (of existing securities) to 75% calculated over a 12-month period. This is more generous than the proposed increase to 30% in the amendments to the EU Prospectus Regulation which will enter into force later this year.
For further issuances below the 75% threshold, issuers will have the option of publishing a voluntary FCA-approved prospectus. Increasing the threshold should make it easier, more efficient and cheaper for companies to undertake secondary fundraisings. Issuers, however, with large shareholder bases spanning multiple jurisdictions are likely to publish a voluntary prospectus to mitigate their exposure under different liability regimes.
Content of a Prospectus
The ‘necessary information’ test will be retained (i.e. the FCA must not approve a prospectus unless it is satisfied that the prospectus contains the necessary information). The FCA has however proposed that the summary of a prospectus may cross-reference to other parts of the prospectus and the page limit is to be increased from 7 to 10 pages.
Climate-Related Disclosures
Increased climate-related disclosures will be required where climate-related risk factors or climate-related opportunities have been identified as material to the issuer’s prospects. Although the draft rules do not detail what supporting information must be disclosed, they provide guidance that the Task Force on Climate-Related Financial Disclosures (TCFD) and S2 of International Sustainability Standards Board (ISSB)[2] may be of assistance in identifying risks and opportunities, and the relevant supporting information.
Six-Day Rule
It is proposed that there should be three, rather than six, working days required for a prospectus to be made public before shares can be admitted to trading on an IPO, with the aim of encouraging retail investors to participate. The FCA also considers that given changes in technology three working days should be sufficient time for investors to review the prospectus, which is available online.
Forward Looking Statements
The current prospectus liability regime will apply. However there will be a new concept of “protected forward-looking statements”, where the liability threshold will be increased to “recklessness” rather than “negligence” and the burden of proof will be on investors. The idea is to encourage issuers to include forward looking statements in their prospectus to enable investors to make better informed investment decisions. Protected forward-looking statements will include statements of opinion or intent, projections, estimates and forecasts.
Working Capital Statements
The FCA is considering whether to allow companies to incorporate assumptions or derive working capital statements from underlying due diligence carried out for the purposes of viability and going concern disclosures in its annual financial statements.
AIM Companies
For primary MTFs on which retail investors can participate (e.g. AIM), an MTF admission prospectus will be required for all IPOs and admissions of enlarged entities as a result of a reverse takeover (unless a fast-track route is used such as the AIM Designated Market Route), even when there is no fundraising. It is expected that the AIM Rules for Companies will be amended accordingly. It is not intended that the MTF admission prospectus requirement will apply to secondary issues on a primary MTF and it is anticipated that an MTF operator will be able to decide whether an MTF admission prospectus is required in such circumstances.
The content of an MTF admission prospectus is expected to be similar to the current AIM admission document, however it will be subject to the same statutory responsibility and compensation provisions as prospectuses. The proposed changes aim to encourage more retail investor participation.
Dual Listings
For dual listings, the FCA will have discretion to determine whether a UK prospectus is required or whether a prospectus published overseas can be relied on for admission to a UK regulated market.
Conclusion
The consultation paper (CP24/12), which coincided with the coming into force of the new UK listing regime, is part of the FCA’s ongoing campaign to enhance the competitiveness of the UK's capital markets by removing many of the frictions that have up until now hindered the progress of many UK public companies.
The reforms to the prospectus rules will, in theory, enable companies to raise capital from a broader range of investors (including retail investors) and make it easier for companies to undertake secondary issues given the increased threshold from 20% to 75% for publishing a prospectus for secondary issues. Capital hungry companies, such as those operating in the natural resources industry, will benefit hugely from these reforms.
