The FCA has launched its consultation on proposed changes to the FCA Handbook to ensure consistency with the new EU Prospectus Regulation.
FCA Consultation on changes to align the FCA Handbook with the EU Prospectus Regulation
On 28 January 2019, the FCA published a consultation paper (CP19/6) describing the changes proposed to the FCA Handbook to ensure that the Prospectus Rules sourcebook is consistent with the new EU Prospectus Regulation (PR). The consultation closes on 28 March 2019.
The PR entered into force on 20 July 2017, though the majority of its provisions will apply from 21 July 2019. As at the date of this article, the UK’s departure from the EU is still set for 29 March 2019 (the withdrawal date). If the draft Withdrawal Agreement agreed between the UK Government and the EU Commission in 2018 is entered into before that date in its current form, there will be an implementation period extending to 31 December 2020, during which time EU law will continue to apply in the UK. This means that the PR - which will have direct effect across the EU - will apply in the UK from 21 July 2019.
The consultation paper is prepared on the basis that Brexit will occur on the basis described above. The FCA makes clear that, in the event of Brexit occurring on 29 March 2019 with no implementation period (which would be the case in the event of a no-deal Brexit), it will not proceed with the proposals set out in the consultation paper and will instead prepare revised proposals once the UK Government has decided whether to proceed with a reform of the UK prospectus regime.
The FCA’s aim
The FCA’s aim is to update the Prospectus Rules Sourcebook (PR Sourcebook), which is part of the FCA Handbook, to ensure that it is consistent with the PR. In large part it will do this by removing existing rules which implemented the Prospectus Directive (as amended), as the PR will repeal and replace the Prospectus Directive.
Principle points to note
The FCA has flagged the following points in particular:
- The PR Sourcebook currently reproduces text from the underlying Prospectus Directive, which isn’t strictly necessary as the PR will have direct effect; however, the FCA considers this is helpful for issuers and other stakeholders.
- The FCA anticipates some changes to its IT systems to capture more information from issuers so as to comply with submissions that have to be made to ESMA under the new prospectus regime.
Details of the proposed changes
In the consultation paper the FCA is seeking views on the following changes that it is proposing to make:
- New PR Sourcebook: The FCA proposes to create a new PR Sourcebook, with a different name, closely following the existing sourcebook and containing (1) content reproduced from the PR, and (2) FCA rules that are required to be prepared under the PR, details of some of which are set out in the consultation paper.
- Filing of prospectuses: Currently, issuers are required to file approved prospectuses with the FCA, which is done through the National Storage Mechanism (NSM). The PR does not require prospectuses to be filed with the FCA (it just requires that they are made public). Therefore, issuers will no longer have to file prospectuses with the NSM. However, the FCA is required under the PR to publish all prospectuses that it has approved, which the FCA plans to do via the NSM. This means that issuers will no longer have any control over the timing of publication of prospectuses, which could be published by the FCA before the issuer itself does so.
- Data submission: The PR requires certain data to be provided to ESMA in a prescribed electronic format when national competent authorities (NCAs) (such as the FCA) notify ESMA of the approval of a prospectus. In this regard, draft regulatory technical standards (RTS) setting out the information that is required to be provided have been prepared and published in ESMA’s final report on RTS under the PR, which contemplates NCAs requiring issuers to provide the relevant data to NCAs. The RTS are not yet final, but even if the final version does not include this requirement the FCA intends to make its own rules in this regard. The FCA expects that information will be provided by issuers using the existing Electronic Submission System, or alternatively a system-to-system solution aimed at frequent issuers (though which may entail some cost).
What happens if there is a “no-deal” Brexit?
If Brexit occurs on 29 March 2019 with no implementation period, the current expectation is that the UK would implement the new Prospectus Regulation, pursuant to the UK’s Financial Services (Implementation of Legislation) Bill and the FCA would consult on necessary changes to the FCA Handbook at that time. However, there is inevitably uncertainty around when that would happen, or if the UK Government would choose to implement a separate reform of the UK prospectus regime.
The consultation closes on 28 March 2019 and the FCA’s aim is to issue a policy statement in May. However, this is subject to change in the event of a “no-deal” Brexit.
Other Prospectus Regulation related developments
Two other recent developments to note relating to the Prospectus Directive/PR are as follows:
- UK onshoring of Prospectus Directive: The UK’s draft “Official Listing” statutory instrument, designed to onshore the existing Prospectus Directive into UK legislation in the event of a no-deal Brexit has been published. This draft statutory instrument makes technical changes to FSMA and the old Prospectus Regulation (809/2004), as well as certain other EU regulations, to address changes resulting from Brexit on 29 March and to ensure that the prospectus, transparency and listing regimes continue to function in the UK after that date. Further information on the background to this statutory instrument, see here. As things stand, the intention is to maintain a regime that is as similar as possible to the existing regime.
- On 31 January 2019, ESMA published three new Q&A on Prospectuses and the Transparency Directive dealing with a “no-deal” Brexit. These Q&As will only apply in case of a no-deal Brexit. The Q&As provide the following clarifications in the event of a no-deal Brexit:
- When issuers of equity securities and non-equity securities with a denomination below EUR 1,000 who currently have the UK as their PD home Member State choose a new home Member State, they should choose between the EU27 Member States / EEA EFTA States1 in which they have activities after 29 March 2019 (either for offers/admissions made after the withdrawal date or admissions made before the withdrawal date which continue after the withdrawal date).
- Issuers admitted to trading on a regulated market within EU27 / EEA EFTA States who currently have the UK as their TD home Member State should choose and disclose their new home Member State without delay following the withdrawal date.
- As the UK will be a third country, prospectuses and supplements approved by the FCA before the withdrawal date cannot be used in EU27 / EEA EFTA after the withdrawal date.
While this is not mentioned in the Q&A, this third point is contrary to the approach that the UK expects to adopt in relation to EU27 / EEA EFTA States approved prospectuses in this scenario, as per Article 73 of the “Official Listing” statutory instrument, whereby the UK will accept passporting in of prospectus approved by EU27 NCAs.
1 The EEA EFTA States are Iceland, Liechtenstein and Norway
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.