UK: Sneak Peek At A Possible Post-Brexit Prospectus And Market Abuse Regime

Last Updated: 6 December 2018
Article by Nikolas Colbridge, Celyn Armstrong and Anna Janik

The government has published explanatory information on some proposed regulations that would address deficiencies in the prospectus and market abuse regimes as a result of Brexit and form part of the government's contingency planning strategy for a no-deal scenario.

Listing, Prospectus and Transparency: HM Treasury explanatory note on EU exit regulations

HM Treasury has published explanatory information on the highly anticipated draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019, which are yet to be published. The regulations will address deficiencies in the Prospectus Directive and Transparency Directive that arise from Brexit and form part of the government's contingency arrangements in the event of a no-deal scenario. They will replicate, as far as possible, the current effects of the prospectus regime, the transparency rules and the listing rules; however, they do make a number of specific changes, which include:

  • Approval of prospectuses: currently, under the Prospectus Directive, once a prospectus has been approved by one EEA state's competent authority, it can be "passported" into all other EEA states for offers to the public or applications for admission to trading on a regulated market without additional prospectus approval. If the UK leaves the EU in March 2019 without a deal, the UK will generally default to treating EEA states and issuers as other third countries/issuers; in that case, prospectuses for use in the UK will need to be approved by the FCA even if they have been approved by a national competent authority of an EEA member state. Consequently:

    • EU member state IPO candidates listing shares in London – and only listing in London – will likely not have to front-run a local approval (which is then passported into the FCA), but rather go directly to the FCA. This presumes (i) no public offering in that EU member state where incorporated and (ii) any European offering being sold to institutional investors;
    • EU member state IPO candidates listing GDRs in London – and only listing GDRs in London – will continue, as previously, to go directly to the FCA for prospectus approval; and
    • EU member state IPO candidates undertaking a dual listing in London and an EU member state will have to undertake two separate approval processes for the prospectus – unless either the UK or the relevant EU member state has determined that prospectus contents are "equivalent". This equivalence decision is a process introduced by Article 29(3) of the Prospectus Regulation ((EU) 2017/1129) – see below.
  • Prospectuses passported into the UK before exit day may be used in the UK until their validity expires.
  • Technical assessments of the prospectus regimes of third country jurisdictions will no longer be carried out by the European Commission, so instead will be undertaken by the FCA.
  • HM Treasury will be responsible for making equivalence decisions (after consultation with BEIS) in respect of the accounting rules of third-country jurisdictions for the purposes of determining whether those rules meet the necessary equivalence standards for the prospectus and transparency regimes. 
  • HM Treasury intends, in a no-deal scenario, to issue an equivalence decision in time for exit day determining that EU-adopted IFRS can continue to be used to prepare financial statements for transparency requirements and for the purposes of preparing a prospectus. The government intends to seek equivalence on accounting under the EU's existing third country regimes.
  • The government has noted that only those provisions of the Prospectus Regulation that have come into force before exit day will be converted into UK law pursuant to the EU Withdrawal Act, but has indicated its intention to domesticate those remaining provisions that are not yet in force.

Market abuse: HM Treasury explanatory note on EU exit regulations

Similarly, HM Treasury has published explanatory information on its proposed amendments to retained EU law related to market abuse, which will be set out in the draft Market Abuse (Amendment) (EU Exit) Regulations 2018. The regulations include:

  • Maintaining the scope of the EU Market Abuse Regulation. UK MAR will capture conduct related to instruments admitted to trading or traded on both UK and EU trading venues.
  • Retaining EU MAR's notification requirements for issuers to report certain information to the relevant national competent authorities, including obligations to report manager transactions, to report any delay in publicly disclosing inside information and to provide, on request, insider lists. This will require:

    • that certain rules be onshored with no difference in substantive application. For example, where an EU member state issuer solely listed in London is currently required to notify the FCA of its delayed disclosure of inside information, this will likely remain the same post Brexit; and
    • that certain rules be substantively changed to reflect the withdrawal. For example, where PDMRs of an EU member state issuer solely listed in London are currently required to notify the local regulator of managers' transactions, this will likely change to the UK regulator.

The changes made in the draft regulations will not take effect on 29 March 2019 if the UK enters an implementation period. 

Financial Services and Markets Act 2000: HM Treasury explanatory note on EU exit regulations

Finally, HM Treasury has published explanatory information on the draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019. These draft regulations will make amendments to FSMA 2000 and related domestic legislation to ensure that the UK's financial services framework continues to operate effectively in a no-deal scenario. HM Treasury has confirmed that it intends to lay the statutory instrument before Parliament ahead of Brexit, but that the changes would not take effect on 29 March 2019 (exit day) if there was an implementation period as part of the deal.

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