Securities law

Financial Services and Markets Act 2000 (FSMA)

Awards under a share incentive plan to employees in the UK should be considered in light of FSMA. FSMA provides a general prohibition on carrying out a regulated activity, unless the person doing so is an authorised person or exempt person. It also restricts a person from, in the course of business, communicating an invitation or inducement to engage in investment activity (the financial promotion restriction). An entity operating an employee share incentive plan will need to satisfy itself that proposed awards under it are either exempt or excluded from the scope of FSMA. Criminal and/or financial penalties can apply where these requirements are breached.

The Prospectus Rules

The EU Prospectus Directive regulates the offer of transferrable securities to the public in the EU and its provisions were adopted in the UK by amendments to FSMA. In general, where an offer of transferrable securities is made to the public an approved prospectus must be made available prior to the offer, unless an exemption applies. In the context of an employee share plan, the relevant provisions may not apply at all depending on the structure of awards because there is no offer of transferrable securities (for example, in the case of a non-transferable employee share option). Alternatively, there are a number of exemptions which may apply to exempt a company from the requirement to issue an approved prospectus.  

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