The UK implementation of the EU Prospectus Directive - key points from FSA CP 04/16

The FSA has recently set out in CP 04/16 its policy in relation to the implementation of the EU's Prospectus Directive (2003/71/EC) (the "Directive") together with proposals on the review of the UK's listing regime. The FSA's policy on implementing the Directive has been formulated in close conjunction with HM Treasury, which itself has released its consultation paper on the same topic (the "Treasury CP"). The Treasury CP sets out the Treasury's proposal on implementing the Directive through primary legislation amending Part VI of the Financial Services and Markets Act 2000 ("FSMA"), whilst CP 04/16 sets out how the FSA will use its own rules and powers (which are set out in Annex V to CP 04/16) as a medium for implementation. The FSA expects responses to CP 04/16 by 14 January 2005.

The Directive is a maximum harmonisation measure and so all current rules falling within the scope of the Directive and which would otherwise be super-equivalent upon implementation of the Directive will be removed from the UK Listing Rules. However, the FSA does propose to retain super-equivalent eligibility and continuing disclosure requirements, both areas falling outside the scope of the Directive.

To complement the extended scope of the FSA's new proposed sourcebook (the "Sourcebook"), it will be divided into three parts. Guidance will now be included next to the rule to which it relates rather than in a separate manual. The three parts will be:

• The Listing Rules – containing the rules and guidance for issuers of securities admitted to the Official List (e.g. eligibility for listing, continuing obligations of issuers of listed securities (except for those rules contained in the Disclosure Rules) and sponsors;
• The Disclosure Rules – containing rules and guidance on the control and publication of inside information and transaction disclosure by those discharging managerial responsibilities and their connected persons;
• The Prospectus Rules – containing rules, regulation and guidance setting out the circumstances in which a prospectus will be required and also outlining the contents requirements relevant for issuers of both listed securities and unlisted securities offered to the public (e.g. incorporation by reference; the use of the tri-partite prospectus instead of a single document at the choice of the issuer; the requirement to include a summary (except in relation to the issue of non-equity securities with a denomination of €50,000 or more)). The rules relating to mini prospectuses, offer notices and summary particulars will be deleted from the current UK Listing Rules and will not be part of the Prospectus Rules. The Prospectus Rules will also reproduce the provisions of the EU's Prospectus Directive Regulation (EC/809/2004) (the "PD Regulations") which are directly effective. The substantive rules relating to debt issuance programmes will remain the same, although the programme offering circular will now be described as a base prospectus and the pricing supplement will be called, the "final terms", in line with the terminology used in the Directive and the PD Regulations. As a rule of thumb, the FSA will usually require prospectuses to be submitted in English, although there may be scope for submission in another international language of finance in relation to cross-border offerings provided that the summary is in English. The Prospectus Rules will also set out the exemptions from the requirement to produce prospectuses.

Whilst the FSA does not consider that its proposed amendments to the Listing Rules will render the new rules fundamentally different from its current rules, the key changes included in CP 04/16 in relation to the implementation of the Directive, and which are of particular relevance to debt issuers, are as follows:

• Scope of the UK Listing Rules – the scope of the UK Listing Rules will be extended and will now also cover public offers of securities and not only admission to trading on a regulated exchange;
• Passport Rights – issuers will be allowed to passport prospectuses on a pan-European basis, facilitating the cross-border raising of capital. Where the passport system has been used for a prospectus originally approved in another Member State in a language other than English, the FSA is entitled to request a translation, although it has admitted that in practice this is only likely to happen for a public offer. An issuer wishing to take advantage of the passport system will be able to request a certificate of approval from the UKLA either simultaneously with the application for approval of its prospectus or any time after the approval;
• Approval of Prospectuses – the Sourcebook will also set out the procedural rules for approving prospectuses (these rules, together with the supplementary prospectus requirements and the rules on omission of information are not expected to change substantially). There will also be rules on the approval of prospectuses drawn up in accordance with the regulations of a non-EU state and the transfer of the approval of prospectuses to the competent authority of another Member State;
• Overseas Issuers – the FSA aims to bring the rules for overseas issuers more closely into line with those for domestic issuers while acknowledging that it may not be appropriate for overseas issuers to always fully comply with domestic rules;
• Other Provisions:

(a) the Sourcebook will also contain rules on:

1. the requirement to file an annual information update by issuers whose securities are admitted to a regulated market;
2. the publication of prospectuses on the issuer's website;
3. the publication of a notice in prescribed form in a newspaper (or in the case of debt securities publication by means of a Regulatory Information Service announcement); and
4. the establishment of a qualified investor register (certain offers made to qualified investors recorded on that register will be exempt from many of the prospectus requirements).

(b) the current advertisements regime in Chapter 8 of the UK Listing Rules will also be superseded by the rules introduced by the Directive and the financial promotion regime will continue to exempt those advertisements issued in connection with public offers and admission to trading on relevant EEA markets.

Further issues of significance arising from CP 04/16 are:

• Listing Principles - the introduction of new listing principles applicable to issuers with a primary listing of equity securities and which will be enforceable as FSA Rules;
• Sponsor Regime – retention of the sponsor requirements for certain transactions, but clarifying the sponsor's role and obligations, toughening their supervision and strengthening enforcement;
• Super-equivalent Eligibility and Continuing Obligation provisions – the FSA will retain existing super-equivalent eligibility requirements for new applicants and continuing obligation requirements;
• Financial Information – adoption of a more flexible approach to the presentation of financial information produced outside the ambit of the Directive;
• Model Code – simplification of the Model Code and extending it to persons "discharging managerial responsibilities" (as defined in MAD) to bring it in line with the EU's Market Abuse Directive ("MAD");
• Debt and Specialist Securities – aligning the requirements for debt securities with those of the Directive and establishing a listing particulars regime for issuers of specialist securities to provide flexibility in the presentation of historical financial information.

Going forward, the FSA intends to publish on the FSA's website a destination table setting out which of the existing rules have been deleted and where the retained rules or new rules can be found. The FSA will also consult, in due course, on its proposal to implement the EU's Transparency Directive in early 2006 (and will revise its rules relating to continuing financial reporting, the disclosure of major shareholdings, information that issuers must provide to holders of their securities and wider access to information about issuers and their securities). At the same time, the FSA will also review Chapters 21 (investment trusts), Chapter 24 (securitised derivatives) and Chapter 26 (venture capital trusts or VTCs) of the current UK Listing Rules in detail.

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