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European Commission proposes changes to EU's prospectus rules

The European Commission has released proposals which it says will improve access to finance for companies and simplify the information provided for investors. The Commission is making changes to the Prospectus Directive, originally adopted in 2003 and last revised six years ago. Under the proposed changes the directive will become an EU Regulation. The proposals follow a review of the directive that took place between February and May of this year.

The EU prospectus rules contain a set of disclosures so that investors across the European Union can benefit from the same level of information on companies that want to raise capital. Aligning disclosure standards aims to make it easier to invest cross border. However, the Commission said that the current rules are too burdensome and costly for companies while investors find it difficult to deal with the detailed information companies presently have to provide.

Commissioner for Financial Stability, Financial Services and Capital Markets Union Jonathan Hill said: “We need a prospectus regime that gives investors the information they need, but that does not pile up unnecessary costs and put companies off raising money on the public markets.”

He believes these current proposals are more balance and would make the system of raising capital simpler, cheaper and quicker.

“It will safeguard investors, while making it easier for small and medium-sized enterprises and other businesses to raise money,” he said.

The proposals form part of the European Commission’s Capital Markets Union Action Plan and its Investment Plan which aims to reduce regulatory burdens on companies and improve investment into the EU.

The proposal will make the following changes:

  • Exempting the smallest capital raisings: There will be a higher threshold to determine when companies must issue a prospectus. No EU prospectus will be required for capital raisings below €500,000 (up from €100,000), providing much needed breathing space for many SMEs. Member States will also be able to set higher thresholds for their domestic markets, and we will double this threshold from €5m to €10m.
  • Creating a lighter prospectus for smaller companies:SMEs need a regime adapted to their needs and the needs of their investors, so that they can produce prospectuses without incurring costs that are not proportionate to the size of the fundraising or the benefits to investors. For smaller issuers who want to tap European markets, we will therefore create a genuinely lighter regime for less complex prospectuses. We will also double the existing threshold for SMEs who can take advantage of it – from €100m market capitalisation to €200m.
  • Shorter prospectuses and better investor information: The prospectus summary is often quite long and is written in complicated legal language that is not useful for most individual investors. It adds costs for companies without meaningful benefit for investors. We will take action to support shorter and clearer prospectuses by specifying more clearly the amount of information that is needed.
  • Simplifying secondary issuance for listed firms: Companies already listed on a public market that want to issue additional shares or raise debt (corporate bonds) will benefit from a new, simplified prospectus. This provides more flexibility and less paperwork for those companies that wish to tap into capital markets more than once. Currently, 70% of prospectuses approved annually are so-called secondary issuances for firms already listed on a public market.
  • Fast track and simplified frequent issuer regime: Companies that frequently tap into capital markets will also be able to use an annual “Universal Registration Document” (URD), a sort of “shelf registration” containing all the necessary information on the company that wants to list shares or issue debt. Issuers who regularly maintain an updated URD with their supervisors will benefit from a 5 day fast-track approval when they actually want to tap into capital markets by issuing shares, bonds or derivatives.
  • Single access point for all EU prospectuses: The European Securities and Markets Authority (ESMA) will for the first time provide free and searchable online access to all prospectuses approved in the European Economic Area. Investors will benefit as they will have a single portal where they can find information on companies that have listed shares or corporate bonds on markets where the general public can invest.

The proposal now goes forward to the European Parliament and the Council of the EU – made up of the member states – for discussion and adoption.

In other EU news the Economic and Monetary Affairs Committee of the European Parliament is to ask on 16 December for all MEPs to vote on a proposal that the European Commission is asked to table measures for member states to improve corporate tax transparency, coordination and EU-wide policy convergence. If it is approved by the Parliament, the Commission will have three months to respond to the recommendations, either with a legislative proposal or with an explanation for not doing so.

What do you think?