Financial Conduct Authority sets out draft new rules to replace the UK prospectus regime

The key proposed changes include:

• A higher threshold for triggering a prospectus for secondary issues.
• Introducing climate-related prospectus disclosures in certain circumstances.
• A new category of protected forward-looking statements.
• A new form of admission prospectus (MTF admission prospectus) for multilateral trading facilities (MTFs) which allow participation by retail investors, referred to as primary MTFs (such as AIM).

The FCA is also consulting in CP24/13 on proposed rules for operating a public offer platform, which will allow companies to offer shares to investors outside of public markets when raising in excess of £5 million.

Background & what is changing?

The POATRs were made in late January 2024 to set out the new legislative framework for regulating public offers of securities and admissions to trading in the UK, replacing the EU-derived prospectus regime. For more information on the POATRs read our previous briefing: Changes to the UK Prospectus regime.

Broadly, the revised framework separates the regulation of admission to trading and offers to the public. The POATRs replace the statutory prohibition on admissions to trading on a UK regulated market without an approved prospectus with FCA rules specifying if and when a prospectus is required. The Regulations also replace the statutory prohibition on offers of securities to the public without an approved prospectus with a general prohibition on offering securities to the public, followed by a series of exemptions. One of the key exemptions is for securities already admitted to trading on a UK regulated market or a market such as AIM.

The POATRs will be supplemented by detailed FCA rules (the subject of this consultation). The FCA published a series of six engagement papers in May and July 2023 setting out the FCA’s initial thoughts on how it may use its rule-making powers under the regime. The FCA published a summary of the feedback received on the engagement papers in December 2023.

A new admission to trading regime

In CP24/12, the FCA sets out its proposed new rules for companies seeking to admit their securities to a UK regulated market or a primary MTF (such as AIM).

Broadly, the Prospectus Regulation Rules in the FCA Handbook (reflecting the UK Prospectus Regulation inherited from the EU) will be replaced with a new Prospectus Rules: Admission to trading on a Regulated Market sourcebook. The FCA intends to retain a large degree of consistency between the new and current regimes in its approach to admissions to trading on regulated markets, with a change in approach for secondary issues.

The starting point is that the FCA will continue to require a prospectus for admissions to trading on regulated markets. Current exemptions under the UK Prospectus Regulation will largely be retained. These exemptions are commented on in more detail at Chapter 3 of CP24/12.

Chapter 3 also summarises the proposals for the detailed content requirements for a prospectus and responsibility for the prospectus (the latter being carried forward from the current regime). The overarching requirement for a prospectus to contain “necessary information” will be retained.

For secondary issues, the FCA proposes to raise the threshold for triggering a prospectus from the current 20% of issued share capital to a new threshold of 75%. This was one of the key recommendations made by the Secondary Capital Raising Review. Companies will still be able to publish a voluntary prospectus approved by the FCA for issues below this threshold.

Other key changes

1. Sustainability related disclosures in prospectuses

Where an issuer has identified climate-related risks as risk factors, or climate-related opportunities as material to its prospects, the rules would require certain climate-related disclosures to be included to allow investors to make an informed assessment of that risk or opportunity.

2. Protected forward-looking statements (PFLS)

Broadly, PFLS are a type of forward-looking statement which are subject to a recklessness liability standard (rather than negligence), with the burden of proof on investors. The FCA sets out proposals in Chapter 7 of CP24/12 to define PFLS (which can constitute financial or operational information), set out certain exclusions from the category of statements that can be PFLS, and the presentation and form of the accompanying statement, so that investors can clearly identify and assess PFLS.

Certain climate-related disclosures would be eligible to be classified as PFLS. Profit forecasts can also be considered PFLS. Otherwise, mandatory disclosures required by the FCA rulebook should not be considered as PFLS.

3. MTF admission prospectus

The FCA proposes that an MTF admission prospectus will be required for all initial admissions to trading and reverse takeovers on primary MTFs that allow participation by retail investors (including AIM). An MTF admission prospectus would not require FCA approval.

The result of this change will be that IPOs to retail investors on markets such as AIM will have the same prospectus requirement as offers to qualified investors, thereby encouraging such companies to include retail investors in offers by default, leading to wider participation in the ownership of public companies. There will be exceptions for existing simplified routes to admission to such markets.

Operators of primary MTFs (eg the London Stock Exchange for AIM) will have discretion to decide whether an MTF admission prospectus will be required for a secondary issue.

New public offer platform regime

The FCA is also consulting on the new proposed regime of operating a public offer platform (POP). The POATRs create a new regulated activity of operating a POP. Broadly, companies will be required to use a POP (such as an equity crowdfunding platform) where they make a public offer of securities to a broad investor base outside a public market where the total value of an offer exceeds £5 million, unless another exemption from the requirement to publish a prospectus is available. Companies can currently raise capital of up to EUR 8 million without the requirement for a prospectus. This will be replaced by the new rules.

CP24/13 sets out the FCA’s proposed rules applying to firms operating a POP. The new activity will supplement existing regulation. Firms wishing to operate a POP will either need to vary their permission, or seek authorisation from the FCA.

What’s next?

Both consultations are open for responses until 18 October 2024. The FCA aims to finalise the rules in both cases by the end of H1 2025. There will be a further period prior to the new rules coming into force.

In respect of the public offer platform regime, the FCA need to consider what further time is required before the regime comes into force to enable firms to apply for permission to carry out the regulated activity.

Further reading

Next steps for UK capital markets reform: UK Secondary Capital Raising Review recommendations published (July 2022)

Changes to the UK prospectus and public offers regime (December 2022)

FCA seeks engagement on reform of the UK prospectus regime (June 2023)

Financial Conduct Authority publishes final UK listing rules (July 2024)