The key changes include:

• Increasing the threshold for triggering a prospectus for further issuances from 20% to 75% (though companies would still be allowed to produce a voluntary prospectus approved by the FCA for issues below this threshold);
• Where a company 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 in a prospectus. This proposed new requirement may be complemented by further guidance; and
• Providing a clear framework to give companies legal certainty on what information constitutes protected forward looking statements (PFLS), which will be subject to an amended statutory liability threshold, and to ensure investors can identify and assess such content.

The deadline for responses to the consultation is 18th October 2024. The FCA aims to finalise the new rules by the end of H1 2025. 

This alert summarises the most significant elements of the proposals being consulted on.

Comment

These proposals, along with the proposals for detailed rules for public offer platforms that were released at the same time (CP24/13), supplement the recently implemented reforms to the listing regime (see here for our client alert summarising those).

The changes proposed will be incrementally helpful in making the UK a more attractive listing venue. Together with the international perception following the general election of the UK being a relatively stable environment for business, they provide grounds for optimism that there may be a material uptick in activity in the UK capital markets. In recent weeks we have seen more stories, and received more enquiries, about potential London listings. Whether this is a temporary boost or the sign of a longer term trend will be something the market will follow with interest.

In depth

Background

In January 2024, the new Public Offers and Admissions to Trading Regulations (POATRs) 2024 were made by Parliament. The POATRs provide a new framework to replace the UK Prospectus Regulation Rules (which were derived from EU legislation) and give the FCA greater discretion to set new rules in this area. The new regime established by the POATRs will become fully effective once the FCA has consulted on and finalised the detailed requirements.

A key aspect of the new regime will be the separate regulation of admissions to trading and offers to the public. The POATRs give the FCA rule-making responsibilities in relation to admissions to trading, allowing it to specify when a prospectus is required, what it should contain and responsibility for its content.

Proposed changes

The key changes being proposed can be summarised as follows.

Content requirements for a prospectus for admission to trading on a regulated market:

• Whilst a summary will still be required to be included in a prospectus, the FCA proposes removing the requirement for detailed financial information in the summary and allowing companies to include cross referencing and incorporation by reference into the prospectus. The mandatory page limit for the summary is proposed to be increased from 7 pages to 10 pages.
• Cross-referencing and incorporation by reference would continue to be discretionary rather than (as had previously been suggested as a possibility) mandatory.
• Financial information requirements would generally be carried across from the existing regime. The FCA is considering potential changes to the working capital statement regime and is seeking views on: (1) whether or not to allow companies to disclose significant judgements made in preparing the working capital statement, including the assumptions the statement is based on and the sensitivity analysis which has been performed; and (2) whether companies should be able to base the working capital statement on the underlying due diligence performed for the purposes of viability and going concern disclosures in their annual financial statements.
• The FCA has produced draft guidance (included as an annex to the consultation paper) for companies with complex financial histories on the financial information they need to provide the FCA in the prospectus and is seeking views on that guidance.

The "six day rule":

• The current requirement that the prospectus on an IPO be made available to the public at least six working days before the end of the offer was flagged as a "significant barrier to issuers involving retail investors in capital raising as issuers. This is because of the delay that this rule imposes on these issuers and the loss of control of the exact timing of the issuance."
• Accordingly, and also factoring in that, given changes in technology, 3 working days should now be sufficient time for investors to review the prospectus (which is available online), the FCA proposes to reduce the minimum period from six business days down to three business days.

Further issuances of equity securities already admitted to trading on a regulated market:

• Probably the most significant change proposed is to increase the threshold from the current 20% of existing share capital (for additional securities fungible with securities already admitted to the same regulated market) for triggering the requirement for a prospectus to a new threshold of 75% (as had been recommended by the Secondary Capital Raising Review).
• The FCA's rationale for this is partly based on a view there are less likely to be concerns about information asymmetry where securities are already admitted to trading on a regulated market (due to the information already available to the market on these securities through other regulation such as the disclosure and transparency rules and the market abuse regulation) as well as to reduce unnecessary costs.
• Recognising that some larger companies with US listings had asked that the FCA retain the possibility that they can publish a voluntary prospectus in order to demonstrate a level of compliance with US requirements, the FCA proposes to continue to allow companies to publish a voluntary prospectus for approval by the FCA.
• At this stage, the FCA has not proposed any new rules to address further issuances (below the 75% threshold) by companies in financial difficulty, where there might be heightened risks for investors but also particular difficulties with costs, but the consultation is seeking views on this.

Sustainability related disclosures in prospectuses for admission to trading on a regulated market:

• The FCA notes its existing guidance in Technical Note 801.2 (TN 801.2) on the circumstances under which a company may need to disclose sustainability-related information, but sees the updating of the framework for prospectuses as an opportunity to update expectations to reflect the development of new disclosure standards such as the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations, the International Sustainability Standards Board (ISSB) Standards (on which the FCA intends to consult further following completion of the Government's endorsement process) and the Transition Plan Taskforce (TPT) Disclosure Framework.
• Recognising that climate-related risks and opportunities may not be of equal importance for all companies, a proposed new rule will apply where a company has identified climate-related risks as risk factors to disclose in the prospectus, or where climate-related opportunities are material to their prospects. In those circumstances, the company must disclose sufficient supporting climate-related information to allow investors to make an informed assessment of that risk or opportunity. The minimum information requirements for these purposes would be set out in Annexes 1, 2 and 5 of the PRM as applicable, though companies would have the option to refer to the TCFD Recommendations and Recommended Disclosures or IFRS S2.
• Mandatory climate-related disclosures will not generally be eligible to be "Protected Forward Looking Statements", with the potential exceptions of climate-related disclosures relating to strategy, transition plans and metrics and targets.
• At this stage, the FCA considers it premature to introduce any minimum content requirements on sustainability-related information beyond climate. The international version of the ISSB standards are considered by the FCA to be useful source material and they therefore propose to reference these when updating the content on sustainability-related information beyond climate in the revised Technical Note.

Protected forward-looking statements:

• Under the POATRs, the FCA has the power to designate certain forward-looking statements as "Protected forward-looking statements" (PFLS), thereby benefiting from a liability regime that imposes a standard of recklessness, rather than negligence, and puts the burden of proof on the investor claiming loss. The intention is that this will reduce the concerns that may otherwise deter companies from including in prospectuses forward-looking statements that investors would find useful.
• The FCA's proposed approach is to use: a general definition that will apply to all PFLS disclosures; category-specific criteria for two categories being either financial or operational information (the FCA considers that sustainability-related disclosures can fit into either of these two categories depending on the nature of the information); and specific exclusions.
• The proposed general definition includes several criteria that will need to be satisfied for a forward-looking statement to be considered PFLS. In particular, a statement can only be a PFLS if its veracity can only be determined by events that occur at a later date and it includes an estimate as to when the event or set of circumstances to which the statement relates is expected to occur. The FCA also proposes to incorporate the "reasonable investor test" (as used when determining inside information under MAR) into the general definition of PFLS.
• The criteria the FCA is proposing for financial information that can be PFLS are based on the existing definition of profit forecast combined with established accounting principles. To qualify, the statement must provide a figure or sufficient information from which a figure can be calculated or estimated. The proposed qualitative criteria will be set out in more detail in related guidance, and are intended to be based on well understood accounting practices and concepts.
• The FCA is proposing that for operational information to qualify as PFLS, it must either: a) provide a figure or sufficient information from which a figure can be calculated or estimated; and/or b) include information that cannot be expressed in numerical terms but can be confirmed empirically through direct observation or objective measurements.
• Aspirational targets and purely narrative statements will be excluded from the PFLS regime, as will most of the mandatory disclosures required under the annexes to the PRM (eg use of proceeds disclosure). However, mandatory profit forecast disclosures (required due to having been published previously) will be eligible to be classed as PFLS.
• The FCA proposes that PFLS should be clearly identified in the prospectus, via the use of two types of accompanying statement:
  • a general statement applying to all PFLS in the prospectus that informs investors about the risks that would apply to any PFLS disclosure (eg, uncertainty, liability standard threshold, etc), which would only need to be included in the prospectus once; and
  • a content-specific statement that identifies a particular disclosure as PFLS and that provides contextual information which is specific to the disclosure.

Multilateral trading facilities:

• Multilateral trading facilities (MTFs), such as AIM, are regulated by the exchange through which they operate. An IPO on an MTF is generally conducted with an admission document, rather than an FCA approved prospectus, being produced, and applicants generally try to keep within an exemption from the requirement to prepare an FCA approved prospectus on the grounds that it is relatively costly and onerous to do so.
• By introducing the concept of an MTF admission prospectus, the Government intends to encourage wider participation in the ownership of public companies by enabling Primary MTF issuers to offer securities to the public (ie, not limited to qualified investors or to fewer than 150 persons) without the burden of having to produce an FCA-approved prospectus.
• In accordance with the POATRs, an MTF admission prospectus will be subject to the same statutory responsibility and compensation provisions as apply to prospectuses. The detailed content requirements and the process for reviewing and approving such documents, however, will be set by the relevant MTF operator.
• The FCA proposes to require an MTF admission prospectus for all initial admissions to trading and admissions of enlarged entities resulting from a reverse takeover. Under this approach, an MTF admission prospectus would be the only type of admission document for all new admissions to trading on Primary MTFs that allow retail participation, even when there is no fundraising. Exceptions to the requirement to produce an MTF admission prospectus would apply where the company uses  the fast-track route for an admission to trading on the AQSE Growth Market or the AIM Designated Market Route for an admission to trading on AIM.
• Operators of Primary MTFs would have discretion in deciding whether to include in their rules a requirement to publish an MTF admission prospectus as a condition to further issuances (and if so at what threshold).
• The FCA proposes to retain, where possible, the existing substantive requirements for publishing a supplementary prospectus and to apply those requirements to MTF admission prospectuses.
• The persons responsible for an MTF admission prospectus would be the same persons that are responsible for a regulated market prospectus.