The New UK Public Offers Regime: Three Key Takeaways and Next Steps

Introduction

The long-awaited Public Offers and Admissions to Trading Regulations 2024 (the Regulations), the legislation replacing the UK Prospectus Regulation (the UKPR), came into effect on 29 January 2024 alongside an explanatory memorandum.  

The strategic purpose of the Regulations is to create a framework for the new prospectus regime as part of the government’s broader Smarter Regulatory Framework agenda for financial services. The Regulations also implement one of the recommendations of the 2021 Lord Hill UK Listing Review (the Hill Review) to increase the attractiveness of London as a destination for IPOs: a new prospectus regime to improve the quality of information investors receive and to make prospectus regulation more agile, dynamic, and capable of being adapted and updated more fluidly.

The new regime, which will not be fully operative until 2025 at the earliest, is expected to operate on broadly comparable terms as the UKPR. The prospectus will remain a key feature of offerings made on the UK’s public markets, but the changes implemented clearly seek to facilitate access to the public markets in the UK which should in particular benefit capital-hungry high-growth companies and their investors by making the process to tap back into the public markets post-IPO less administratively burdensome, time-consuming and costly.

A further significant change to the prospectus regime in the UK is the transfer of responsibility for the regime to the Financial Conduct Authority (the FCA); critically, the power to decide whether or not a prospectus is required will now reside exclusively with the FCA. The move away from legislation also makes amending the regime in the future a much less burdensome process and will hopefully allow the FCA to efficiently adapt the regime to evolving market conditions thereby enabling London to maintain its competitiveness as a listing venue.

The three key takeaways from the Regulations are set out below:

1.) Public Offers

Under the UKPR, an offer of a transferable security is generally lawful if either a prospectus is published or one of the prescribed exemptions is applicable to the offering. The Regulations flip the position around and instead introduce a general prohibition, subject to exemptions (in other words, an offer of relevant securities to the public will be unlawful unless it falls within one of the 13 exemptions set out in Schedule 1 of the Regulations).

Substantially all existing exemptions contained in the UKPR have been included in the Regulations, including those pertaining to offers to qualified investors or to offers to less than 150 persons. Furthermore, a number of new exemptions were added to the list. For example:

• Offers to existing shareholders and persons connected with them
• Offers made via a “regulated platform”, which includes crowdfunding platforms run by authorised persons that are subject to certain standards
• Offers for which the transferable securities will be admitted to trading on a regulated market or primary multilateral trading facility (an MTF, which covers London’s Alternative Investment Market, or AIM) or for which the transferable securities being offered are at the time of the offer already admitted to trading on a regulated market or primary MTF

The exemption relating to regulated platforms strives in particular to maximise participation of retail investors in equity offerings, because offers made via platforms such as crowdfunding platforms are likely to be largely directed at retail investors.

One notable change to existing exemptions is the decrease of the maximum total consideration threshold across a 12-month period from €8 million to £5 million; we do not expect this change to have important practical implications because the revised thresholds still exempt a large number of transactions.

2.) Prospectus Liability and Content Requirements

The new prospectus regime moves away from a legislation-based regime and shifts powers to the FCA, which will have authority to decide on who are considered the persons responsible for the prospectus. Despite this shift, the expectation is that the FCA will not deviate from the current allocation of responsibility; i.e. the issuer, current and prospective directors, and individuals who expressly accept responsibility in the prospectus.

The content requirements of a prospectus have largely transferred across to the Regulations from the UKPR. However, the FCA now has the power to authorise omissions from the prospectus and mandate the inclusion of additional information where it deems necessary to ensure investor protection. The ability to seek damages for any loss resulting from false or misleading statements included in the prospectus is also still available pursuant to the Regulations.

One key point of divergence between the Regulations and the UKPR concerns forward-looking statements. These types of statements (which include projections, targets, estimates, opinions about future events or circumstances, forecasts, and intentions) were identified in the Hill Review as particularly useful for investors when making investment decisions, but it was thought that the associated liability regime discouraged companies from using them more often.

In a departure from the current regime, the FCA will be able to exempt persons from liability in relation to certain specific forward-looking statements, known as “protected forward-looking statements”. The Regulations also raise the liability threshold for these protected forward-looking statements from negligence to a threshold based on fraud or recklessness. This change aligns with the liability threshold adopted for other information published by listed companies and should give persons responsible more comfort given the threshold is a harder one to meet.

It remains to be seen what the practical effects of these changes will be, particularly on offerings with a US component; the US liability regime and greater litigiousness in the US in respect of disclosure documents may cause sensitivities to remain for persons responsible for the offer document and forward-looking information.

3.) Admission of Transferable Securities

Contrary to the current position, in which the UKPR and associated legislation set out the specific circumstances in which a prospectus is needed, the FCA will now possess the flexibility to stipulate the circumstances in which a prospectus will be required. It is likely that the FCA will implement rules that provide clarity on when a prospectus should be produced, its contents, how long it will be valid for, and how it should be published for both primary and secondary issuances.

The FCA discussed how it should seek to use this discretionary power and the rules it should implement in Engagement Papers 1, 2 and 4. For secondary issuances of securities already admitted to trading, engagement feedback included in particular suggestions to increase the threshold requirement to publish a prospectus to 75% of the existing share capital, to two-thirds of a listed company’s existing share capital or to a threshold of 30% to 40% of the existing capital. While the final threshold at which the requirement to publish a prospectus has not been set, an increase to the current 20% threshold will significantly help reduce one of the main competitive disadvantages of London compared with the US markets, where tapping back into the markets for secondary transactions is easier and follows a more streamlined process. Reducing the need for a prospectus to be prepared for secondary capital raising will significantly reduce the time and cost involved in the UK process and improve efficiency of secondary capital raising in the UK.

The FCA’s new discretionary powers also extend to securities that are being admitted to an MTF, such as AIM. The FCA’s role with respect to MTFs will be different from its role in connection with regulated markets because it is not directly responsible for regulating admissions but is able to impose rules.

The FCA has offered some initial thoughts on its intentions with respect to prospectus regulation on MTFs; in particular, the FCA has signalled its intention to require all initial MTF admissions to require a prospectus (which should be described as an MTF admission prospectus), regardless of any retail involvement. It could, however, relax this intention and limit the publication of a prospectus to only when there is retail involvement. One of the current benefits of the AIM admission process is that the admission document does not require regulatory review or approval. The FCA has also expressed its intention to defer to the discretion of the MTF operators with regard to subsequent issuances of shares.

What’s Next?

Currently, only certain provisions of the Regulations are effective, such as the ones providing the FCA with the requisite authority to create the detailed rules for the new prospectus regime. The FCA now intends to conduct a lengthy consultation process and publish a consultation paper in summer 2024. As a result, the new regime is not expected to be operative until 2025 at the earliest. In 2023, the FCA published six engagement papers that articulate its preliminary thoughts on a number of key themes surrounding the new prospectus regime.

This prominence of the FCA in the formation of the new prospectus regime is consistent with the government’s desire to delegate an increased amount of responsibility to the FCA, as was set out in the Prospectus Regime Review Outcome in March 2022. The FCA’s rules will also have to align with the government’s overarching stated objective of maximising retail and institutional participation in the capital markets.