Primary Markets
Primary Markets by Ruari Ewing, Charlotte Bellamy, Katie Kelly and Mushtaq Kapasi
The UK prospectus and listings regimes Following the end of the post-Brexit transition period and the publication of Lord Hill’s UK Listings Review, HM Treasury and the FCA have consulted on a wide range of proposals to reform the UK prospectus and listings regimes. In line with the strategy for UK financial services outlined by the Chancellor of the Exchequer in July, the core focus and drive for change seems to be to ensure that the UK’s regime is flexible, agile and appropriately calibrated. There appears to be a strong focus on the UK’s equity capital markets and listing of shares on the London Stock Exchange. In some ways, this is not surprising given wholesale bond markets are currently functioning efficiently under the current regulatory regime. However, any changes that are made to the UK prospectus and listing regime driven by the needs of the equity capital markets need to be either neutral or positive for the debt capital markets. This message underpins ICMA’s responses to the various recent consultations.
UK Prospectus Regulation consultation In its consultation on the UK Prospectus Regulation, which closed on 24 September, HM Treasury took forward many of the recommendations made in Lord Hill’s UK Listings Review. This included a proposed structural change to the UK Prospectus Regulation that would separate the prospectus regime for admission to trading from the prospectus regime for public offers. For the (largely wholesale) international bond market, the proposed new admission to trading regime will be very important. A striking change is the degree of discretion that will be given to the FCA to set rules for this regime, rather than having very detailed requirements set out in primary legislation as is currently the case. The shift away from prescriptive primary legislation and towards FCA rulemaking is intended to create a more flexible, agile regime, and is anticipated to be a general trend in the UK’s post-Brexit financial services regulation following HM Treasury’s Future Regulatory Framework Review and the strategy announced by the Chancellor of the Exchequer in July. ICMA’s response to the consultation highlighted ICMA members’ overarching concern to ensure that the currently well-functioning and efficient pan-European primary wholesale bond market is not disrupted or subjected to PAGE 28 | IS S U E 63 | FOURTH QUARTER 2021 | ICMAGROUP.ORG
unnecessary additional or disproportionate costs. Whilst HM Treasury’s proposed approach does not give rise to these concerns immediately, much will depend on the precise approach taken with respect to two aspects: first, the exemptions from the public offer regime; and second, the approach taken in relation to “wholesale” disclosure for bonds admitted to trading on UK markets. In relation to the exemptions from the public offer regime, bond issuers will wish to continue to issue wholesale bonds on a pan-European basis with minimal (or no) additional burdens. As such, it is important that HM Treasury and the FCA consider how any changes to the UK prospectus regime are likely to impact upon issuers that currently rely either on exemptions under the EU Prospectus Regulation or exemptions under the UK Prospectus Regulation. In the bond market, the most heavily used exemption under both the EU and UK Prospectus Regulations is currently the €100,000 minimum denomination exemption. The implications of restating the UK threshold in sterling for pan-European bond offerings will therefore require careful consideration. The future of the “wholesale” disclosure regime would be for the FCA to decide under HM Treasury’s proposed new approach. In particular, the FCA would have discretion to decide whether the current approach of allowing wholesale disclosure (including an exemption from the requirement to prepare a prospectus summary) for bonds with a minimum denomination of €100,000 will be retained or not. This is an important issue for bond market participants and an area that ICMA will wish to discuss with the FCA in due course. ICMA also flagged certain other improvements that could be made to the current regime that would make it work even more efficiently for international bond markets. These include refinements to the “necessary information” test, the definition of “public offer”, the rules relating to supplements and withdrawal rights, as well as an ability to incorporate by reference “future” financial information. The next step is for HM Treasury to consider the responses it received to the consultation before taking forward any changes to the UK Prospectus Regulation. ICMA will continue to monitor developments, engage with the HM Treasury team and keep members informed.
