HM Treasury has published ‘UK Prospectus Regime: a consultation’. It overlaps with a similar paper from the Financial Conduct Authority (FCA), ‘Primary Markets Effectiveness Review, a consultation’ released on the same day.
Both reviews reflected the Chancellor, Rishi Sunak’s, Mansion House speech in which he promised reforms to the regulation of capital markets and the insurance sector. While he seemed to accept that re-establishing the City’s access to EU markets with equivalence post-Brexit was increasingly unlikely, he saw the need to develop the UK's financial regulatory system more critical than ever.
The Treasury’s consultation is based on Lord Jonathan Hill’s UK Listings Review which outlined policy changes in order to attract innovative and successful firms to list in the UK and help companies access the finance they need to grow. The consultation sets out how the government proposes reviewing and potentially replacing the prospectus regime the UK has inherited from the EU.
The Treasury’s objectives for the consultation are:
- Objective 1: To facilitate wider participation in the ownership of public companies and remove the disincentives that currently exist for those companies to issue securities to wider groups of investors.
- Objective 2: To improve the efficiency of public capital raising by simplifying regulation and removing the duplications that currently exist in the UK prospectus regime.
- Objective 3: To improve the quality of information investors receive under the prospectus regime.
- Objective 4: To make the regulation in this area more agile and dynamic, capable of being quickly adapted and updated as times change.
Views from all interested parties on this consultation are sought, including from investors, financial services firms and accounting and law firms. When providing answers to the questions, detail on the reasons for your answers and any additional information that may help Treasury consider the next steps would be welcomed.
The consultation runs from Friday 2nd July to Friday 24th September. You can respond by emailing
The FCA also published its consultation, 'Primary Markets Effectiveness Review'. It's a wide-ranging look at how to improve the effectiveness of Britain’s financial markets. It too was responding to Lord Hill's UK Listing Review and the Kalifa Review of UK FinTech.
- One of its primary discussion points is to allow a targeted form of dual-class share structure. A dual-class share structure works by offering two separate sets of shares. One share structure is publicly traded but without voting or limited rights. The other remains with the company's founders and executives and have a greater weighting in voting processes. The FCA argument is that a dual-class share structure allows company-founders to exert more control over the direction of the company, which should encourage them to list on UK exchanges.
- It also proposed that the amount of shares an issuer is required to have in public hands from 25% to 10%.
The FCA wants views from the industry and the public by completing the form on its website or sending a response to
HM Treasury: ‘UK Prospectus Regime: a consultation’
Financial Conduct Authority (FCA), ‘Primary Markets Effectiveness Review, a consultation’
- The document says prospectuses are and will remain an important component of the regulation of UK Regulated Markets but there are concerns about the level of detail required By the current Prospectus Regulation legislation.
- Revision of Section 85(1), 85(2) and 85(3) of the Financial Services and Markets Act 2000. The government would like to explore whether it should remain a criminal offence to request admission to trading prior to a prospectus being published, as it is now.
- Changes would enable new rule-making responsibilities, revision of the existing Prospectus Regulation would enable the FCA to incorporate a replacement regime into its handbook and tailor the regime appropriately after that when required.
Delegation and accountability: the Future Regulatory Framework approach
The proposed new rulemaking responsibilities for the FCA would replace the existing Prospectus Regulation, an area of retained EU law. The government undertakes to consult on any changes to regulations.
- Q1: Do you agree with our overall approach to reforming the UK prospectus regime?
- Q2: Do you agree with the key objectives that we are seeking to achieve?
What is the purpose of a prospectus when seeking admission to a regulated market?
The new rule-making responsibilities will be to enable the FCA to regulate admissions of securities to trading on Regulated Markets. The FCA will have broad discretion on the provision of a prospectus. The FCA will be able to specify in its rules when a prospectus is needed.
- Q3: Do you have any views on the underlying purpose of a prospectus when seeking admission to a regulated market?
When should a prospectus be required for admission to a regulated market?
The government proposes granting the FCA discretion to determine whether or not a prospectus is required when securities are admitted to trading on UK Regulated Markets. It should also outline exemptions.
Q4: Do you agree the FCA should have the discretion to set rules on when a further issue prospectus is required?
Recognition of prospectuses for secondary listings
The Government is interested in the creation of a framework that would permit overseas companies wanting a secondary listing to come to UK markets using an overseas prospectus prepared in accordance with the rules in the jurisdiction of their primary listing.
Q5: Do you agree the Government should grant the FCA sufficient discretion to be able to recognise prospectuses prepared in accordance with overseas regulation in connection with a secondary listing in the UK?
Prospectus content and ancillary provisions, ‘necessary information’ test
The government proposes prospectus standards should be based on the existing ‘necessary information’ test. The substantive provisions of the necessary information test are currently located in Article 6 of the Prospectus Regulation, following the 2017 reform. It is proposed to retain the substance of the core test.
Under the 2017 EU Prospectus Regulation, what was called the simplified disclosure regime for certain secondary issuances, set out in Article 14, a separate standard of preparation for these documents. It requires them to contain the relevant reduced information which is necessary to enable investors to understand.
Q6: Do you agree with our approach to the ‘necessary information test’?
The Government’s preferred approach to prospectus content issues is that all content matters below the level required to establish a statutory standard of preparation should be delegated to the FCA including detailed components as required.
Furthermore, the government does not propose any substantive amendments to Article 18 of the Prospectus Regulation that permits the FCA to authorise the omission of information from a prospectus.
- Q7: Do you agree the FCA should have the discretion to set out rules on the review and approval of prospectuses?
- Q8: Do you have any comments on what ancillary powers the FCA will need in order to ensure admissions of securities to Regulated Markets function smoothly? (See the list of potential powers in Annex A.)
Lord Hill identified the legal liability faced by companies and their directors as the main deterrent to the inclusion in prospectuses of the most useful category of information ‘forward-looking information. He saw these projections of the future profitability of a company as ‘key' data for investors.
The government outlined concerns that the liability which attaches to the information published in prospectuses is established by section 90 of FSMA was too strict even with Section 10 exemptions. This 'negligence standard' did not necessarily improve the quality of information that investors receive and specifically restricted financial information that was available in other authorised forms of communication.
This should change under the FCA's guidance.
- Q9 – Do you agree with our proposed change to the prospectus liability regime for forward-looking information?
- Q10 – Do you think that our proposed changes strike the right balance between ensuring that investors have the best possible information, and investor protection?
There is a consideration for widening market access to companies through multilateral trading facilities (MTFs) which have fewer obligations than regulated markets but still require a prospectus.
The first new proposal is an exemption from the section 85(1) restriction on public offerings of securities with added conditions. The second proposal is the exemption and new prospectus reporting requirements defined by the MTF but under the eye of the FCA.
The government has also launched its Wholesale Markets Review, looking at creating a new small company marketplace.
- Q11 – Which option for addressing companies admitted to MTFs do you favour and why?
The scope of the UK’s public offering rules
In part, the government is seeking to shake up 'public' offering rules. It proposes that the current reporting requirements should be relaxed if the offering is being made to existing shareholders.
Q13 – Do you agree there should be a new exemption from the public offer rules for offers directed at existing holders of a company’s securities?
A similar proposal of rules relaxation should the offering be to under 150 people or already identified as a 'Qualified Investor'.
Q14 – Do you agree we should retain the 150 person threshold for public offers of securities and the ‘qualified investors’ exemption? Do you have any comments on whether they operate effectively?
Public offerings by private companies
The consultation document looks at raising money via crowdfunding, minibonds and equity issuance, highlighting that for many private companies the reporting requirements are too onerous. Given these concerns with the prospectus regime for private companies, the government is interested in looking at alternative obligations to the requirement that an offeror publishes a prospectus where a private company offers securities that are not to be admitted to a stock market. It offered three options:
- Instead of a company preparing a prospectus, an offer of securities over a threshold amount could be required to be registered with and to offer its securities via an authorised firm.
- Option 2 is a variant of Option 1. For the purpose of this consultation, the new regulated activity might be described as ‘operating a platform for the public offering of securities. This option would be that the offeror is required to register the offer with a firm authorised to operate a platform for the public offering of securities.
- Status quo: under this option, we would retain the obligation for a prospectus over the €8million threshold.
- Q16 – Which option for accommodating the right of private companies to offer securities to the public do you favour?
Public offers by overseas companies
The government put forward three options:
- Status quo: leave the system as is.
- Option 2: This would allow companies with securities listed on a non-UK stock market to extend an offer of those securities to the public in the UK, on the basis of offering documents prepared in accordance with the rules of that market’s jurisdiction. However, there would be no FCA review of the documents.
- No right to make a public offer into the UK.
- Q17 – Which of the options above do you prefer? (Please state reasons).
- Q18 – Do you have any further thoughts or considerations over how a new deference mechanism (Option 2) should operate?
Overseas private companies
The government considers the risks of cross-border public offerings in the securities of overseas private companies to be in a different category to those presented by listed companies and does not want to provide a facility enabling these companies to make public offerings into the UK.
- Q19 – Do you agree there should be no mechanism to allow public offerings of securities by overseas unlisted companies? (Please state reasons).
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