Last reviewed 4 May 2012

Paul Clarke

Updating the Prospectus Directive

The Prospectus Directive (2003/71/EC) came into force on 1 July 2005, providing the EU framework that governs the preparation of prospectuses for public offers of securities, and for the admission of securities to trading on a regulated market. Its objectives are to enhance investor protection and improve the efficiency of the single market. The key innovation brought about by the introduction of the Prospectus Directive was the creation of a passport across the Union’s capital markets — allowing a prospectus approved in one Member State to be valid across them all.

In January 2007, the European Commission launched its Action Programme for reducing administrative burdens in the EU, to measure administrative costs arising from legislation and aiming to reduce administrative burdens by 25% by 2012. The Prospectus Directive was identified as containing a number of burdensome obligations for companies, some of which could be alleviated. On 24 November 2010, the European Parliament and the Council of Ministers adopted Amending Directive 2010/73/EU, which revised the Prospectus Directive as well as the companion Transparency Directive (2004/109/EC) which sets out disclosure requirements that issuers must make once their securities are admitted to trading.

The new regime

Directive 2010/73/EU came into force on 31 December 2010 giving Member States until 1 July 2012 to implement its requirements in national legislation. It makes changes to both the Prospectus and Transparency Directives to ensure that issuers are not required to duplicate their disclosures under the two regimes and to ensure that they are aligned. The key changes are the following.

  • Improvements have been made to strengthen the format, content and comparability of the prospectus summary. The extent to which liability ought to attach to the summary has also been clarified.

  • A proportionate disclosure regime is introduced for small companies admitted to trading on a regulated market; pre-emptive offers of equities; and for offers of debt securities by lenders (totalling up to €75 million per year).

  • Clarification is provided as to the period for which a supplement must be produced and to the rights of investors to withdraw from an offer.

  • The definition of a "qualified investor" has been brought into line with the definition in Directive 2004/39/EC, the Markets in Financial Instruments Directive (MiFID).

  • Revisions have been made to the scope of provisions and exemptions which determine when the Prospectus Directive applies and whether a prospectus is needed. These generally involve increases in the threshold and exemption amounts. The new directive also extends the current exemptions from producing a prospectus for employee share schemes to benefit non-EEA companies with employees in the European Economic Area (EEA).

  • The exemption from the obligation to publish a prospectus for subsequent resales of securities through intermediaries (known as the retail cascade) has been formalised.

Note that the new European Securities and Markets Authority (ESMA), which must now be notified by the national authority when a prospectus is approved, is currently carrying out further technical (known as "level 2") work on the detail of the new directive's operation.

Implementation in the UK

The FSA (Financial Services Authority) published a consultation paper in December 2011 entitled UK implementation of Amending Directive 2010/73/EU — Simplifying the EU Prospectus and Transparency Directives. Comments were requested by 13 March 2012. This consultation sets out the way in which the UK intends to take forward the implementation of the new directive. Responsibility for this is shared between the Treasury, which has the power to make changes to the Financial Services and Markets Act 2000 (FSMA), and the FSA, under its Prospectus Rules (PRs), Listing Rules (LRs) and Disclosure and Transparency Rules (DTRs).