The regulation, which replaces Directive 2003/71/EC of the European Parliament and of the Council, the so-called ‘prospectus directive’, will become applicable on a rolling basis as set out in the regulation itself, and will be binding in its entirety without the need of the Maltese Parliament’s intervention.
The European Commission hailed the implementation of the regulation as an essential step towards the completion of its initiative to establish a Capital Markets Union in the EU. The overarching goal of the regulation is to assist enterprises to exploit different sources of capital from all around the European Union and which will in turn stimulate a better environment for the internal market to function more efficiently.
By reducing the reliance on bank financing, and by varying the sources of capital funding for businesses, in particular small- and medium-sized enterprises, the regulation will also provide investors with more investment options, while ensuring adequate investment protection. From introducing a lighter regulatory regime to facilitating increased access to financing, the regulation aims to augment market efficiency while keeping in check the safeguarding of investor rights.
One of the most welcome changes heralded by the regulation is that small capital raisings and crowdfunding projects of up to €1 million will not need to issue a prospectus at all and will fall out of the regulation’s scope. This is a substantial increase of the €100,000 threshold applicable under the old regime. Moreover, in terms of the regulation, the exemption not to publish a prospectus shall also apply, among others, to an offer of securities whose denomination per unit amounts to at least €100,000.
In similar vein, the regulation will allow member states to exempt offers of securities to the public from the publication of an EU prospectus provided, amongst other things, that the total consideration of the capital raised in the EU over a year does not exceed €8 million. One must note, however, that when such offers of securities to the public are exempted from the obligation to publish a prospectus, these offers would not be able to avail themselves of the passporting regime set out in the regulation.
The regulation also seeks to make disclosure obligations less onerous in various scenarios. To this end, the regulation sets out rules for a range of different forms of prospectuses, namely: (i) a standard prospectus, (ii) a wholesale prospectus for non-equity securities, (iii) a base prospectus, and (iv) a simplified prospectus for secondary issuances and an EU growth prospectus.
The publication of simplified and lighter prospectuses reduces the administrative burden on issuers or offerors of securities, while ensuring that the basic information and necessary particulars which an investor would reasonably require to be able to make an informed overall assessment are catered for.
Another initiative spearheaded by the regulation, targeted at small- and medium-sized enterprises is the introduction of the so called EU growth prospectus. When offering securities to the public, SMEs, and other issuers listed in article 15 of the regulation, which do not already have securities admitted to trading on a regulated market, may choose to draw up a simplified standardised prospectus, written in a simple language and which is relatively easy to complete.
Additionally, once an EU growth prospectus is approved, it may benefit from the passporting regime under the regulation and should therefore be valid for any offer of securities to the public across the EU.
Besides simplification, the regulation strives to ensure uniformity of disclosures across the EU by eliminating all asymmetries which are previously encountered under the old regime, while at the same time catering for the development of a cross-border passport mechanism within a harmonised framework.
The rationale behind this harmonised framework stems from the fact that different approaches in different member states hinders the smooth functioning of the internal market as issuers in one member state would be subject to a different legal framework other member states, thereby running creating unnecessary obstacles and barriers.
It is evident that by means of the regulation, the European Commission is striving to strengthen the role of market-based finance in the European economy, with the ultimate aim of stimulating economic growth and job creation. Only time will tell whether the new prospectus rules live up to the Commission’s expectations.
This article was first published in The Times of Malta, 5 August 2017.