The FCA consultation paper, published on 23 November 2018, includes the amendments that the FCA is proposing to make to the Listing Rules, Disclosure Guidance and Transparency Rules (DTRs) and Prospectus Rules on exit day. The consultation closed on 21 December 2018. The FCA intends to give feedback on the consultation paper and publish near final instruments in early 2019.
These amendments follow the initial guidance issued by the Treasury on draft regulations to amend the listing and prospectus regime. An updated version was published together with the draft regulations on 12 December 2018. It also follows the Treasury’s paper setting out its approach to financial services legislation under EUWA. In that paper the Treasury indicated that, in the event of a no deal, it will, in general, treat the EU and its member states in the same way as it treats non-EU or third countries, although there will be instances where the Treasury will diverge from this approach where necessary.
The main changes proposed in the FCA’s consultation paper are:
Free float requirements - instead of applicants and listed companies having to show that at least 25% of the shares (or any such other level that has been agreed) are in public hands within the EEA, shareholders in any jurisdiction would count towards the free float. The FCA has concluded that replacing the EEA with the UK would have been too restrictive and it is therefore proposing to remove any reference to “EEA” instead.
When is a prospectus required and passporting - the UK government is proposing that the prospectus regime in the UK will apply to all issuers that:
- have securities admitted to trading on a regulated market in the UK or admitted to listing in the UK, or
- are making an offer to the public in the UK.
This would apply regardless of the country that the issuer is incorporated in.
The current rules allow a company to offer shares throughout the EU using a prospectus which has been approved in only one member state (this transferability is known as “passporting”).
The new rules would mean that issuers incorporated in an EU member state would need to have a prospectus approved by the FCA as well as by its own home state authority and would not be able to use a passported document.
There will be a grace period so that any prospectuses that are valid in the UK before exit (including those approved by a competent authority in a different EU member state) will remain valid for 12 months after their date of approval.
If other EU member states also cease to allow passporting, UK companies will have to have their prospectuses approved both in the UK and in other member states and may have to comply with different approval and content requirements, which could make it more time consuming and costly to offer shares in other member states.
Transparency requirements and vote holder notifications: Chapters 4 to 6 of the DTRs currently apply to issuers with securities admitted to trading on a regulated market in the EU and for which the FCA is the home competent authority. DTR 5 also applies to issuers admitted to a UK ‘prescribed’ market (such as AIM).
These chapters would be amended so that, after exit, they would apply to issuers with securities admitted to trading on a UK-regulated market , wherever the home competent authority is. This means that an issuer on, for example, the Main Market, whose home competent authority is not the FCA would become subject to these rules.
Consolidated accounts: the rules would be amended to require issuers to use IFRS adopted by the UK to prepare their consolidated accounts, instead of IFRS adopted by the EU. To allow for a transition period, the UK government intends issuing an equivalence decision so that issuers can continue to use EU-adopted IFRS, for Transparency Directive requirements and to prepare a prospectus, for any financial year beginning before the exit day but will have to use IFRS adopted by the UK for any financial year starting on or after exit day.
Audit committees: an issuer must currently have an audit committee, unless it is a subsidiary undertaking and its parent undertaking is required to have one under the DTRs or certain requirements in another EEA member state. This would be amended so that the exemption will only be available if the parent undertaking has to have an audit committee under the DTRs but the other limb of the existing exemption would continue to apply for a financial year beginning before exit day.
EEA auditors: currently UK traded non-EEA issuers can use an EEA auditor to provide the audit report for their annual financial statement. After exit, EEA auditors would become subject to the same rules as third country auditors and will have to register with the FCA.
Non-registered EEA auditors will be able to audit results for financial years beginning before exit day, but they will have to have been registered for any financial years beginning on or after exit day.
Dissemination of information: issuers can currently choose whether to disseminate information using a Primary Information Provider (PIPs) or an incoming society service. After exit, only PIPs would be able to disseminate the information.