FCA publishes Consultation Paper ahead of new EU Prospectus Regulation

On 28 January 2019, the United Kingdom’s (the “UK”) Financial Conduct Authority (the “FCA”) published its “Changes to align the FCA Handbook with the EU Prospectus Regulation” consultation paper1 (the “Consultation Paper”). The Consultation Paper is seeking views on proposals (“Proposals”) aimed at ensuring consistency between the FCA Handbook and the EU Prospectus Regulation (the “Regulation”), if the UK (i) leaves the European Union (the “EU”) on 29 March 2019 with a Withdrawal Agreement in place and (ii) enters into an implementation period until 31 December 2020, during which EU law will continue to be applicable. 

With the majority of the provisions of the Regulation due to come into effect on 21 July 2019, the FCA is seeking feedback on the Proposals by 28 March 2019 and intends to issue a policy statement by the end of May 2019.

Summary of the Proposals

The FCA proposes to replace its current Prospectus Rules Sourcebook (which is included in the FCA Handbook) with a new Prospectus Regulation Rules Sourcebook (the “New Sourcebook”). The New Sourcebook will replicate key provisions of the Regulation, other relevant EU legislation and domestic law and contain the rules required under the Regulation. The FCA intends to keep the structure of the New Sourcebook similar to that of the current Prospectus Rules sourcebook to maintain continuity during the transition period. 

Key Proposals to note include:

• Persons responsible for a prospectus – Prospectus Rule (“PR”) 5.5 currently specifies: (i) who is responsible for a prospectus for equity shares and all other securities; and (ii) when a person is not responsible for a prospectus. As article 11 of the Regulation is similar to the corresponding provision in the Prospectus Directive2, the FCA proposes to mirror the existing provisions of PR 5.5 in the New Sourcebook rather than to prepare and include new provisions.
• Use of language – PR 4.1 specifies that a prospectus must be drawn up in English when an issuer’s home state is the UK, as well as other related language rules. Article 27 of the Regulation is similar in content to the corresponding provision of the Prospectus Directive, and, accordingly, the FCA again proposes to mirror the existing provisions of PR 4.1 in the New Sourcebook. The FCA proposes to reflect differences between the provisions of Article 27(5) Regulation and the Prospectus Directive for markets only accessible by qualified investors.
• Sending data to the FCA – The New Sourcebook will require issuers to send information to the FCA in electronic format.
• Prospectus accuracy – The rules currently set out in PR 3.1.2A and PR 3.1.2B require an applicant to send a compliant, factually accurate prospectus to the FCA. The FCA proposes to retain these provisions, as they reflect current market practice across Europe and existing regulatory expectations.

Next Steps

The Consultation Paper notes that the FCA will not proceed with the Proposals in the event of a “No-Deal” Brexit. In such an event, it is expected that the Regulation will be brought into UK domestic legislation by way of the Financial Services (Implementation of Legislation) Bill, which was introduced by the Government on 22 November 2018 and would need to be passed by Parliament. In this circumstance, the FCA is expected to issue a further consultation on proposals to replicate the Regulation into the UK’s domestic regime.

The FCA has asked for views on the Proposals by 28 March 2019. 

Footnotes

1) Changes to align the FCA Handbook with the EU Prospectus Regulation

2) Directive 2003/71/EC of the European Parliament and of the Council