The UK implementation of the EU Prospectus Directive

United Kingdom

On 29 October 2004, HM Treasury published its joint Consultation Paper with the FSA (the "Treasury CP"), representing the final piece of the jigsaw of documents setting out the UK's proposals for implementing the EU's Prospectus Directive (2003/71/EC) (the "Directive"). The Directive has to be implemented by EU Member States by 1 July 2005. HM Treasury invites comments on the Treasury CP by 28 January 2005.

The Treasury CP sets out the Treasury's proposals for the implementation of the Directive through primary legislation amending Part VI and Schedules 7 - 11 of the Financial Services and Markets Act 2000 ("FSMA"). The Treasury proposes to extend the relevant sections of the FSMA to address both public offers and admission of securities to trading on a regulated market, so that Part VI will continue to establish the overall legislative framework under which the current FSA Listing Rules will be revised to effect the detailed implementation of the Directive.

The EU's Public Offers Directive (89/298/EC) will be superseded as of 1 July 2005 and consequently the UK's Public Offers of Securities Regulations (SI 1995/1537) (the "POS Regs") will also be repealed as at the same date. A key consequence of this is that when a prospectus is required, it will now have to be approved by the UKLA regardless of whether it relates to listed or unlisted securities (as opposed to simply having to be registered with Companies House when the prospectus relates to a public offer of unlisted securities, as is currently the case).

The Financial Services and Markets Act 2000 (Official Listing of Securities) Regulations 2001 relating to responsibility for the contents of the prospectus will be extended to cover prospectuses produced both for public offers and for securities admitted to trading on a regulated market. The FSA, as the competent authority in the UK for the purposes of the Directive, will also undertake a review of the current Listing Rules and will use its own rules and powers as a medium for implementation. The FSA's proposals on implementing the Directive are set out in CP 04/16 (for further details please click here).

The Treasury points out that since the Directive is a maximum harmonisation measure, there is little scope available to the UK for flexibility in its implementation. Therefore, the majority of the implementation will be effected by the transposition of the relevant parts of the Directive and related implementing measures into UK legislation. The Treasury's key proposals included in its consultation paper on the implementation of the Directive are as follows:

  • Definition of public offer: recognising that the definition of "public offer" in the Directive (particularly in the context of the resale of securities in the secondary market) is extremely wide and ambiguous, the Treasury proposes to implement the definition directly, but will clarify that it does not include a communication in connection with screen trading on a regulated market, a multilateral trading facility or any market prescribed for the purposes of the UK's market abuse regime under s118 of the FSMA. The Treasury has asked for comments on whether the Directive definition benefits from this clarification and whether respondents anticipate any other significant issues regarding the application of the definition in other circumstances;
  • POS Regs: the Directive states that all public offers below €2.5million are outside its scope. The Treasury points out that this represents a significant change as the POS Regs required a prospectus to be produced and filed with Companies House in relation to public offers in excess of £100,000, subject to the exceptions set out in the POS Regs. The Treasury has asked for comments on whether an additional UK prospectus regime should be kept for issues beneath the €2.5million threshold for investor protection considerations;
  • Exemptions: the Treasury proposes that the exemption in relation to "offers to fewer than 100 natural or legal persons per Member State" should apply on an aggregated basis over a 12-month period. The Treasury has asked for comments on its approach to implementing the exemption in relation to offers of securities to fewer than 100 persons;
  • Responsibility and compensation: the Treasury proposes to leave the current structure and identification of responsibility for prospectuses unchanged. Accordingly, the current listing particulars section of Part VI of the FSMA will remain intact and a new section relating to prospectuses will be introduced. The Treasury has asked for comments on its proposed implementation approach for attaching responsibility to the prospectus;
  • Qualified Investors: Member States may choose to authorise natural persons and Small and Medium Enterprises, meeting certain criteria, as "qualified investors" under the Directive. Offers of securities addressed solely to such "qualified investors" will be exempt from the obligation to publish a prospectus. The UK proposes to allow the authorisation of such persons and the setting up of the necessary register. The Treasury has asked for comments as to whether the UK should have a Qualified Investor regime.

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