The EU Prospectus Regulation ("PR") came into effect on July 21, 2019. As a result, public offers or admissions to trading on EU regulated markets of equity or debt securities are only possible on the basis of a new prospectus that complies with the PR and the recently published level 2 measures (Commission Delegated Regulation (EU) 2019/979 and 980).
What does this mean for issuers active in the EU markets?
We have summarized some of the key legal facts that will help in the transition to the new regulation below:
- Immediate application and grandfathering: The PR is applicable with regard to new prospectuses as well as marketing materials (including oral marketing statements) even in cases where the offer was originally made before July 21, 2019. Prospectuses approved in the EU prior to July 21, 2019 are subject to grandfathering until their expiration under the EU Prospectus Directive ("PD"). However, it should be noted that legacy registration documents cannot be used in combination with a PRcompliant prospectus.
- Key changes to prospectus content: The minimum content requirements for issuer and securities disclosures remain essentially unchanged. However, there have been changes to applicable prospectus types, like the new EU growth prospectuses. In addition, the PR no longer differentiates between corporate issuers and financial institutions with respect to debt issuances. One key change is the new summary format. There is a strict limitation on the length of the summary (in general only seven pages) and some of the content and the structure of the summary has been predetermined by the PR. Another key area is risk factors. EU regulatory authorities will base their reviews on guidelines by ESMA, which are expected to be published shortly. These guidelines in particular focus on more concise and – in particular – specific risk factors for the issuer and the securities. Accordingly, regulators will likely expect material changes to existing risk disclosures. These new requirements might affect risk disclosures in financial statements where they are incorporated into a base prospectuses without any changes.
- Important changes for retail structured notes platforms: Existing retail structured notes platforms, which usually use the base prospectus format, will be affected as the regulators will increase their focus on (i) a transparent and clear structure for the base prospectus (including the length of the base prospectus) and (ii) the use of plain language. Clearer disclosure about the different securities and payout structures are expected by ESMA. This might require material revisions to existing base prospectuses or even newly prepared disclosures. Issuers may need to increase the number of base prospectuses in order to capture the full product spectrum of an issuance platform.
- Approval procedures: Approval procedures are still subject to a maximum review period of 10 business days (which, under the PR, excludes Saturdays). It remains to be seen to what extent the regulators are prepared to commit to certain timetables. In particular, within the first year of the transition, issuers should expect several rounds of comments by the regulators. In addition, the approval procedure will require the delivery of metadata to the competent authority.
- What about Brexit? It should be noted that grandfathered PD as well as new PR prospectuses approved in the United Kingdom may no longer be used in the EU following Brexit. Approval of new prospectuses in other EU member states should therefore be considered.
Many EU market participants have already prepared for the transition and started to re-draft their base prospectuses. The German BaFin regulators will accept new PR prospectuses for approval from July 21, 2019 only. In addition, the EU regulators will adjust to the new review process over time and their views and approaches might continue to develop in unanticipated ways. BaFin just recently held a workshop for the market highlighting the importance of a diligent approach to the new law. Market participants should plan for a sufficient period of time for the review process by the regulator - which might take several weeks – and material changes to the content of existing base prospectuses.
Originally published in REVERSEinquiries: Volume 2, Issue
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.