The text of the new Prospectus Regulation (the “Regulation”) was adopted by the Council of the European Union on 16th May 2017, as the European Parliament previously approved the text on 5th April 2017. The first prospectus directive was adopted in 2003 and revised in 2009. By turning the current EU Directive 2003/71/EC into a Regulation, a more streamlined and coherent approach will be ensured across the European Union, reducing national fragmentation, as well as the scope for differences in national implementation. The revision of the Prospectus Directive (the “Directive”) is an important step to build the Capital Markets Union. In 2015 the European Commission conducted a consultation which identified shortcomings in the current Directive. For companies, these rules constitute huge legal paperwork. This could be costly and burdensome for businesses, especially for smaller ones. Furthermore, the information in the prospectus is often presented in legal terminology difficult to understand for many investors. The new Regulation intends to improve the prospectus regime and to increase access for smaller companies to debt capital markets across Europe’s 28 member states. The Prospectus Regulation is intended to reduce burdens and lead to shorter prospectuses, better and more concise information for investors, a fast track regime for companies that frequently tap capital markets, and a simplified disclosure regime for SMEs and secondary issuances.

Major improvements introduced by the Prospectus Regulation:New exemption for small capital raisings: A higher threshold to determine when companies should issue a prospectus is introduced. No EU prospectus shall be required for securities offers and crowdfunding projects with a total consideration in the EU of less than EUR 1 mln (increased from EUR 100 000 under the existing regime). Member states shall also have the possibility to exempt offers of securities of less than EUR 8 mln over a period of 12 months (almost doubling the previous EUR 5 mln threshold). Offerings addressed only to qualified investors, to fewer than 150 persons (other than qualified investors) per member state and offers of securities whose denomination per unit amounts to at least EUR 100 000 remain exempt;Changed exemption for admission to trading: The prospectus exemption threshold for the admission to trading of new securities is doubled to up to 20%. A new maximum threshold of 20% is introduced for the exemption relating to the admission to trading of shares issued following a conversion or exercise of convertible bonds or warrants. These exemptions should not be cumulated if this could lead to the immediate or deferred admission to trading of more than 20% of the number of shares already admitted to trading over a period of 12 months;Wholesale disclosure regime: The scope of the wholesale disclosure regime shall be widened to include issues of debt securities that are admitted to an EU regulated market (or segment thereof) where access is limited to qualified investors;Shorter and clearer prospectus: Prospectus summaries shall change in terms of content and format in order to become easier for investors to understand. They shall now be limited to up to 7 pages as a meaningful benefit for investors. Prospectus summaries shall become subject to strict content and format prescriptions;EU growth prospectus: A lighter prospectus for smaller companies and small issuances shall be introduced. SMEs, mid-caps admitted to an SME Growth market or small issuances by non-listed companies shall prepare prospectuses without incurring costs that are not proportionate to the size of the fundraising or the benefits to investors. The format and reduced content shall be specified in delegated acts to be adopted by the European Commission;Simplifying secondary issuance for listed firms: Companies already listed on a public market that want to issue additional shares or raise debt shall take advantage of a new, simplified prospectus which shall consist of a summary, a specific registration document, and a specific securities note. This simplified regime shall be applicable to issuers whose securities have been listed on a regulated market or an SME growth market for at least 18 months;Fast track and simplified frequent issuer regime: A sort of “shelf registration” concept shall be introduced for companies that frequently issue securities on capital markets. They shall now be able to use an annual “Universal Registration Document” (URD) containing all the necessary information on the company, thus meeting the requirements of a share disclosure regime. Issuers who regularly maintain an updated URD with their supervisors shall benefit from a 5 day fast-track approval (instead of 10 business days currently). When filed (and approved) for 2 consecutive years, subsequent URDs may be filed without prior approval and reviewed on an ex-post basis by the competent authority; Single access point for all EU prospectuses: Investors shall benefit from access to a new single free portal operated by ESMA where they can find information on all prospectuses approved in the European Economic Area. Paper prospectuses shall no longer be required unless a potential investor expressly requests one;Risks factors: Risk factors must be ranked in order of materiality in each category and issuers may disclose their assessment of the likelihood of the risk materialising
Next steps:Prospectus Regulation shall enter into force on the 20th day after its publication in the Official Journal (expected in July 2017). The European Securities and Markets Authority (ESMA) shall be tasked with preparing the regulatory technical standards which will provide more information on the detailed annexes including those for guaranteed, asset-backed securities and other structured finance instruments. Certain elements of the Regulation shall be further specified in delegated acts to be adopted by the European Commission based on the technical advice by ESMA. Since the Regulation does not require further implementation measures by EU member states to be effective, it is expected that the Regulation and the delegated acts shall be directly applicable in all member states from the third quarter of 2019.