The Edinburgh Reforms – FAQs

As issuers and investors get to grips with the reforms announced by the UK Chancellor in December 2022 (including a policy note and example statutory instrument), Tom Godwin and Jenny McCarthy answer some of the most frequently asked questions on the changes for IPO candidates and companies listed in London.

1. Where have the proposals got to?
   • The FSM Bill, which gives the government power to repeal the UK Prospectus Regulation and replace it with a new ‘Designated Activities Regime’, was introduced in July 2022 and is now at the committee stage in the House of Lords, so moving through the legislative process.
   • The draft statutory instrument published in December shows how the DAR will be used to create a new public offers regime. Once this framework is set up, the FCA will be delegated authority to make detailed rules including on when a prospectus will be required.
   • This means the final step will be consultation by the FCA on the detail of the new requirements. HMT’s December policy note says that the FCA intends to engage with the market in 2023 alongside the FSM Bill process, which should help to speed up this step.
   • Although not the final word, the government’s draft legislation delivers on the conclusions of the Prospectus Regime Review, so the direction of travel seems to be settled. There are areas that will continue to move and points of detail not yet covered in the draft, but it is a good time to take stock of the practical impact of the changes.

2. When will a prospectus have to be published? What’s changing?
   • No more prospectuses for offers to the public – either you fall within one of the exemptions or the offer is prohibited.
   • Familiar exemptions are largely still there (qualified investors, fewer than 150 persons, employee offers, scrip dividends, share-for-share deals, maximum total consideration), plus a few new ones.
   • Key new exemption is for any size of public offer if the securities are already admitted to trading (i.e. listed companies) or are subject to an application for admission (i.e. IPOs).
   • Remember of course, even if a UK company is offering shares within the UK public offer exemption, it will still need to consider securities law requirements in the other jurisdictions – including those in the US – where the offer is being made.

3. So do IPO candidates and listed companies still need to produce a prospectus?
   • Aside from possible overseas requirements, the other current trigger for a prospectus currently is for the admission of securities to trading on a regulated market.
   • This trigger will be formally removed and effectively replaced with new rules to be set out by the FCA, who will be given the authority to specify when a prospectus is required for admission (including content, review/approval and publication requirements).

4. What might those FCA rules look like?
   • It is likely they will, in certain cases, still mean publishing a prospectus: the government has made clear that ‘the concept of a prospectus will be retained as an important part of the regulation of public offers of securities admitted to trading’.
   • So prospectuses are likely to continue to be a feature of an LSE IPO and beyond – the FCA’s powers are being extended so they can require operators of ‘primary MTFs’ to require an admission document to be published and treated as a prospectus.
   • What form an IPO prospectus takes, and whether a prospectus is required for secondary issuances by already-listed companies, is under consideration by the FCA.
   • Watch this space, but Mark Austin’s Secondary Capital Raising Review recommended no prospectus be needed if issuing less than 75% (up from 20%) of the company’s issued share capital, and no sponsor bank for secondary issuances.
   • On content, the SCRR also made recommendations on the current overlap between a prospectus and the company’s annual report. You can find more details on the SCRR’s recommendations here: Austin Review on Secondary Capital Raisings published.

5. Can we include projections in the prospectus now?
   • As always, it is possible to include forward-looking information in the prospectus. Issuers have been reticent to do that since (amongst other things) the same stringent liability attaches to that information as does to the historical information in the prospectus.
   • The proposal is that the issuer and directors will only be liable to investors for (certain types of sign-posted) forward-looking information if at the time they made it they knew or were reckless as to whether the statement was untrue or misleading. The categories of forward-looking information that will benefit from this treatment will be determined by the FCA.
   • Still necessary to consider the issuer’s and directors’ liability profile in overseas jurisdictions where any offer is being made (e.g. the US).

6. Are the EU rules also changing? How will they compare? 
   • Yes, in December the European Commission also published reform proposals in a draft Listing Act, with the aim of simplifying access to European capital markets and streamlining the listing process as well as post-listing requirements.
   • The proposals include a simplified prospectus of a maximum of 50 pages for the most complex follow-on offers, and a 10-page summary document or no prospectus at all for smaller / simpler secondaries. It remains to be seen which way the FCA might go with this.
   • Secondary capital raising is also moving in a similar direction as the UK Secondary Capital Raising Review: the EU Listing Act proposals, that were later published, suggest the threshold for a prospectus being the issue of 40% of share capital (compared to 75% in the SCRR).
   • For further information on the EU Listing Act, see our blog EU Listing Act – A big leap forward for European prospectuses? by Stephen Pachinger and Daniel von Bülow.