UK implementation of the Amending Directive

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• UK implementation of the Amending Directive
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• Consultations on the UK Corporate Governance Code, UK Stewardship Code and International Standards on Auditing

The Directive amending the Prospectus Directive and Transparency Directive (the "Amending Directive", 2010/73/EU) came into force on 31 December 2010 and was required to be implemented by all member states by 1 July 2012. The UK implemented two aspects of the Amending Directive on 1 July 2011. This article briefly summarises how the UK has implemented this and the remaining amendments.

On 1 July 2011 the UK implemented two aspects of the Amending Directive by way of amendments to the Financial Services and Markets Act 2000 ("FSMA"). These were:

• increasing from 100 to 150 the number of persons (other than qualified investors) to whom an offer of transferable securities may be made before an approved prospectus is required; and
• increasing from €2.5 million to €5 million the limit for the total consideration of an offer in the EU where a prospectus is not required.

On 1 July 2012 the Amending Directive was implemented in the UK by:

• the Prospectus Regulations 2012 (SI 2012/1538) which made further amendments to FSMA; and
• the FSA Prospectus Amending Directive Instrument 2012 which amended the FSA Handbook - primarily the Prospectus Rules, Listing Rules and Disclosure and Transparency Rules ("DTRs").

The main changes made by virtue of the implementation of the Amending Directive are set out below.

1.  Changes to exemptions from producing a prospectus 

(a)  The definition of "qualified investor" has been changed to bring it into line with MiFID (the Markets in Financial Instruments Directive, as amended) categories of investors, namely professional clients, persons treated as professional clients and eligible counterparties. As noted above, the concept of a qualified investor is relevant to the calculation of the number of persons to whom an offer of transferable securities may be made before an approved prospectus is required. It is the classification of an investor by the investment firm or credit institution that will be relevant and such organisations must communicate the client classification to an issuer (subject to data protection rules). The requirement for the Financial Services Authority to maintain a register of qualified investors has been deleted;

(b)  The minimum consideration a person must pay for transferable securities in order to be exempt from the obligation to produce a prospectus has increased from €50,000 to €100,000 (or an equivalent amount); and

(c)  The minimum denomination of transferable securities to qualify for an exemption from producing a prospectus has increased from €50,000 to €100,000 (or an equivalent amount).

2.  Content of prospectus summary

Clarification has been provided on the content of the prospectus summary. The summary must convey concisely the "key information" relating to the securities which are the subject of the prospectus. The definition of key information includes the essential characteristics and risks associated with the issuer and the securities, the general terms of the offer and the use of proceeds.

Clarification has also been provided that liability will not attach to the prospectus summary unless, when read with the rest of the prospectus, it is misleading or inconsistent or does not provide the key information (as defined above).

The European Commission has also published a delegated regulation amending the Prospectus Regulation which provides that the length of a summary should not exceed 7% of the length of the prospectus or 15 pages, whichever is longer. This replaces the requirement that a summary should be no longer than 2,500 words.

3.  Supplementary prospectuses

Changes to FSMA have clarified the period when a supplementary prospectus can be required as being the period between when the prospectus is approved and the later of the offer closing and the point when the securities start to trade on the regulated market. The changes also clarify that, where a supplementary prospectus is published, a condition to an investor's right to withdraw is that the significant new matter giving rise to the need for the supplementary prospectus must have occurred prior to delivery of the relevant securities.

4.  Changes for retail cascade regime

The changes to FSMA provide that a new prospectus is not required on the subsequent resale of securities through a financial intermediary (known as a retail cascade) where a valid prospectus is still available and the issuer, or other person that drew up the prospectus, has given its written consent to the use of that prospectus.

5.  Final terms

FSMA is being amended to include a new provision that final terms may only contain information that relates to the securities note and must not be used to supplement the base prospectus.

6.  Other changes to the Prospectus Rules

The requirement for issuers with securities admitted to trading on a regulated market to publish an annual update has been deleted, as it replicates requirements under the DTRs.

Various changes have been made to the incorporation of documents by reference. Only documents filed under the Prospectus Directive or Transparency Directive may be incorporated by reference.  Issuers are no longer entitled to incorporate by reference information published in an annual information update.

Brad Isaac is a Partner in the Corporate Group of Field Fisher Waterhouse LLP in London.