Brexit: the implications for debt capital markets
The impact of the UK leaving the EU on offers of debt securities in the UK will depend both on the final terms of the exit and the extent to which the UK Government and the Financial Conduct Authority (FCA) maintain the current regime. The UK Government are keen to ensure that the London Stock Exchange maintains its existing status as a leading international stock exchange.
- EU (Withdrawal) Act 2018
The European Union (Withdrawal) Act 2018 (EUWA) provides that, on exit day, broadly any UK law implementing an EU Directive will be retained and all directly applicable EU law and EU Regulations will be converted into domestic law.
If there is no deal, then exit day will be 29 March 2019.
If, however, the draft Withdrawal Agreement agreed between the UK and the EU (see Brexit negotiations: recent developments) is approved and ratified, exit day is likely to be at the end of a transition period. The transition period is proposed to be from 30 March 2019 to 31 December 2020 and can be extended, by mutual agreement, for up to one or two years.
If there is a transition period, changes to the listing, transparency and prospectus regime will depend on the outcome of the negotiations on the future relationship between the UK and the EU. During this period, EU rules will continue to apply and access to the EU markets will continue on the current terms.
The EUWA also gives ministers the power to amend legislation to ensure the retained EU law functions effectively after exit. The regulators (including the FCA and the PRA) have also been given delegated powers to amend EU-derived provisions in their rulebooks and existing EU technical standards to correct deficiencies arising from the UK leaving the EU so that they function effectively after exit.
A number of other processes are now being put in place, both in the UK and the EU, in preparation for Brexit that may impact debt capital market practitioners and parties. These include the following:
- FCA Consultation
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 consultation paper is prepared on the basis that Brexit will occur on 29 March 2019.
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.
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.
- 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. For 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.
- ESMA Q&A
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 States 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 set out in Article 73 of the “Official Listing” statutory instrument, whereby the UK will accept passporting in of prospectuses approved by EU27 national competent authorities.
1 The EEA EFTA States are Iceland, Liechtenstein and Norway.
For further information, please refer to Brexit: the legal implications.
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.